Q4 2022 Beauty Health Co Earnings Call

Speaker 1: Good morning and welcome to the beauty health company's fourth quarter and fiscal year 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. We ask that you limit yourself to one question during Q&A. Please note this event is being recorded. I would now like to turn the conference over to Eduardo Rodriguez, Senior Director of M&A and Investor Relations. Please go ahead.

Speaker 2: Thank you, operator, and good morning, everyone. Thank you for joining the Beauty Health Companies conference call to discuss the company's fourth quarter and full year 2022 financial results, which were released this morning and can be found on our website at beautyhealth.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's President and Chief Executive Officer, Andrew Smith, and Chief Financial Officer, Leanne Wu.

Speaker 2: 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 present non-GAAP financial measures such as adjusted gross margin and adjusted EBITDA. A conciliation 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 Beauty Health's fourth quarter and full year 2022 earnings call.

Speaker 3: To begin, I will discuss our performance and accomplishments for the year. My first serving as CEO of this incredible category creating company. I am extremely proud of the progress of our team in these past 12 months, and I am pleased to share the results with you today. I will also discuss our outlook for 2023 before Lianne provides more detail on the numbers. We will then be happy to take your questions. As always, I want to start by thanking our incredible BeautyHealth ONE team. Our teams around the world worked tirelessly over the past 12 months to execute our strategy and deliver incredible growth and momentum amid uncertainty in the operating environment. Despite the macro backdrop, we delivered a year of record revenue. We launched the biggest product innovation in our company's history with SINDEO, our next generation hydrofacial delivery system.

Speaker 3: We continue to build the world's premier skincare booster portfolio, partnering with the best in the industry from Murad to JLo Beauty. We open more doors than any year before with exciting retail partnerships and expansive growth in the booming Med Spa channel, not to mention continued solid growth in our core medical channel. Our loyal provider community and consumer fanbase remains highly engaged and is growing around the world. The planned investments we have made to scale our business over the last two years are driving strong top-line growth and position us for margin expansion in 2023 and beyond. Let's now look at the results on slide five. In Q4 2022, we reported net sales of 98.1 million. Our eighth consecutive quarter of delivering mid double digit top-line year-on-year growth and of beating expectations. For the full year up, planned strategic investments paired with continued consumer and provider demand drove strong sales growth of 41% year over year to $365.9 million. This growth represents the resiliency of our business.

Speaker 3: and the increasing demand for hydrofacial, despite the challenging macro backdrop. In particular, for an exchange headwind in Europe was significantly impactful, and China's zero COVID policy delayed return on our planned investment and our China infrastructure buildup. Notwithstanding these challenges, we delivered adjusted EBITDA of 47.7 million for the full year, up 46% year over year. I'm also pleased to report that we achieved double digit growth in all three of our operating regions in 2022. Year over year, the Americas grew 44%, APEC increased 24%, and AMIA was up 46%. These strong growth numbers are in reported currency. On a local or constant currency basis, the results are even stronger. Our strong growth is nothing new. We have averaged 48% growth per year, and 2018 when excluding 2020 per COVID. Our period of planned heavy investment is now behind us. As a new public company, our global infrastructure build is largely to compete, and ready to scale. Our business model remains agile, and we have strong fundamentals in place to capture the large, profitable growth opportunities ahead of us. As a result of our momentum, we have full conviction in our long-range plan to deliver 600 to 700 million dollars net sales, and we have invested EBITDA margin in the range of 25 to 30% by 2025. Targets we first shared at our beauty health investor day last fall. If 2022 was about establishing a new foundation,

Speaker 3: The focus of 2023 and beyond is about accelerating profitable growth. We will launch SINDO internationally in the second quarter of 2023. We have taken lessons learned from our highly successful US launch last year and look forward to growing SINDO soon to be global footprint. We will build our portfolio products to sell to hydrofacial providers, adding strategic and science bank boosters to our portfolio of personalized treatment options as well as through strategic M&A. We will expand our business in China as zero COVID policies ease and consumer activities returns and we remain optimistic on the outlook and our long-term opportunity in the strategic market. As you would expect, we will remain nimble and able to quickly pull levers to protect our margin should on the ground conditions in China to deteriorate. In totality, I am confident in our ability to generate net sales of 450 to 470 million and to deliver an adjusted EBITDA margin in the range of 18 to 20% for 2023. Turning to slide 7, we continue to make strong progress against our five-point master plan, which you are all familiar with. Our strategy to expand our footprint and increase provider and consumer access to hydrofacial is working. In fact, we have continued to expand our position as the market leader, with some research estimating our market share to be around 85%. It is hard to displace the go-to brand and hydrofacial has become an eponym for the category it created. In 2022, we delivered a record 8492 hydrofacial system globally, which includes 1,793 trade-up units to SINDO. This represents a 37% increase from 2021, highlighting consumer and provider resiliency and increasing demand globally for our products. Across distribution channels, we continue to see provider preference for the hydrofacial treatment and device.

Importantly, these treatments represent a promising source of consumables growth for us covering larger treatment areas as well as offering provide us new revenue streams from their existing hydro facial system and this is yet another win win experience for our providers enough.

<unk> is among the world's top educators the petition and we continued to invest in our providers as a key pillar of our five point Master plan.

Investments in our growing and loyal community, what we call the hydro facial nation continue to drive brand awareness and media value and ultimately sales growth.

In addition to a renowned heightened effects trainings. We also regularly engage with our providers the high profile trade shows.

Here on Slide 10, you can see our impressive presence at January as Ymcas trade show in Paris, and event, which brings together the top doctors as petitions in skin health leaders from across the globe.

Across the globe, we see the love for our brand and growing exponentially.

Slide 11, you can see two metrics, we follow as indicators of brand awareness among providers and consumers.

Media Valley, and Google search trends.

In 2022, we grew earned media by 85% year over year, driven by an exponential jump and influence and press activity.

In 2022 were the fastest growing brand in terms of <unk> any aesthetics brand measured by tribe dynamics. Additionally, our worldwide. Google search activity has continued to trend meaningfully upward over the last four years.

Indeed in 2022, we established a new higher baseline for performance.

In all of our storytelling, we remain anchored and science, which is our touchstone and represents the core of our brand DNA. It has some science, where hydro facial created the hydro Dermabrasion category and is where we continue to lead the industry and remains unrivaled by competitors.

In your clinical study published in the peer reviewed journal of clinical and aesthetic dermatology.

Hydro facial clarifying treatments improve acme concerns for 100% of study participants.

It is a secret as petitions have long known now further validated with clinical results.

Study results generated widespread interest from providers and consumers alike with media coverage across beauty titled in broadcast chatter on social and a spike in orders for a clarifying boosters.

Interest in hydro facial signs the story doesn't stop with providers consumers are increasingly interested too as they look to step beyond the wellness trends of postures and seek out position well scientific endorsement of their beauty and aesthetic choices.

It is a trend we call the medicalization of beauty.

Our long term shifting consumer mindset, the beauty health and hydro facial are intrinsically poised to capture it.

We see an embrace of decided by the earliest adopters and pacemakers in beauty and aesthetics influencers and celebrities.

To this end, we're partnering with a diverse range of influencers and celebrities to rapidly scale the hydro facial message.

Among the recent defense to professed their love for Hydro facial Lilly Collins 8-K, Emily and parents shed the secret of hydro facial invoked France.

The Ritchie social media Megastar with more than 13 million photos showed her treatment and progress on her channels Lewis.

Lewis the heavier an up and coming designer prepped, all 38 of his models with a hydro facial before they want the runway at New York fashion week and of course Gela remains I most vocal supporter.

Moving to slide 13, we continue to innovate our partnership model just yesterday, we announced a new partnership with the iconic Dior beauty.

Together, we have developed a deal how it by hydro special experience, which includes a custom protocol and co branded booster that will be available exclusively in deal spas around the world later in 2023.

Partnership incorporates the best of your skincare with hydro facial technology promises to resonate with a sophisticated beauty consumer we are yes, again, setting a brand apart and extending our competitive moat with this prestige beauty powerhouse.

Turning to slide 14.

The acceleration that we're seeing in our business is thanks to the planned investment we made in infrastructure and capabilities during the past two years.

Since joining the company last year I made several additions to fortify our executive leadership team and I'm confident that we now have the right team in place to drive our strategy forward and deliver profitable growth.

We opened key training and education centers in New York, London, Paris, and Singapore, I made planned investments and I'll provide a community to drive loyalty and awareness.

We also invested in foundational operational initiatives and infrastructure build that we expect will deliver future leverage.

These included progress on in region production in China.

Assessing our phase III pale partner in Europe , and rolling out global ERP and CRM platforms.

Moving to M&A on slide 15.

As we progress into 2023, we remain committed to creating value for shareholders through disciplined capital allocation.

M&A remains a priority.

Retain a strong cash position to pursue opportunities to accelerate the platform.

We continue to evaluate options specifically those opportunities all brands that provide a differentiated product or service with a high net promoter score.

Our complimentary to our existing platform and community leveraging distribution call point and are financially accretive with compelling revenue growth and additive to our profitability.

Today I'm excited to announce a key strategic acquisition that will immediately build a product portfolio for providers, while providing beauty health with a future second profitable growth revenue stream and a large and growing market.

Do you see health has signed an agreement to acquire skin stylus and FDA cleared micro needling device <unk>.

Including all potential royalties the milestones the transaction is valued at approximately $15 million.

Acro needling is a rapidly growing non surgical procedure performed by qualified providers, including dermatologists plastic surgeons and patients. The treatment uses an array of tiny needles to create micro puncture in the skin to stimulate the body's natural wound response, which was associated with the creation of new collagen and smooth.

The summer even toned skin.

Today, the micro needling market size is around $540 million in the U S alone industry estimates put the growth rate at a high single digit CAGR to reach an expected 1 billion by 2030.

Micro needling is one of the top co treatments for hydro facial making a perfect fit to sell alongside hydro facial.

Many of our dermatologists plastic surgeons and institutions recommend a hydro facial is a pretreatment to ensure the skin is clean and its optimal state before micro needling.

Indeed, when I'm in the field with our providers. It is one of the most requested tools are institutions ask us to bring to market.

Consequently, micro needling represents a significant growth opportunity for BD health given the complementarity of the service the hydro facial in our existing distribution call points.

What's more skin stylus also seamlessly fits into our existing razor razorblade commercial infrastructure.

The skin <unk> business model consists of the skin stylus device, along with single use cartridges containing the needle arrays to operate the device as a recurring revenue stream.

We have been actively looking in this space for over a year and after extensive research and analysis. We are highly confident that in the skin stylus device. We have found the best in class technology to add to our portfolio and to create sustained long term shareholder value.

Moving carefully studied the category, we believe skin cells offers providers innovation that is new better and different anything else on the market.

Specifically skin stylus is the only device with multiple arrays of needles at different heights to achieve optimal outcomes. Additionally, it offers a superior user experience to the provider with a patented designed to prevent cross contamination and the flexibility to operate it with or without a cord for Maxim.

<unk> provide a flexibility.

Looking forward, we intend to make modest investments to see key regulatory approvals to expand the use of skin stylus for additional indications and to markets outside of the U S.

Asking stylus is an emerging technology at the beginning of its journey. The revenue will be limited in 2023. However, we expect upside from this acquisition in 2024 and beyond as we seek to leverage the BD health infrastructure and sales and marketing capabilities to capture share in this large and growing market.

We could not be more excited for the opportunity to bundle hydro facial together with the skin stylus device is a clear step towards realizing our vision to become the world's leading beauty health and wellness platform fueled by a community of engaged providers institutions and consumers, we will share more about our plan.

As we work towards completing a successful integration of skin stylus into the busy health portfolio.

And finally before I turn it over to Leann I want to again, thank our teams around the world and reiterate how proud I am of what we accomplished in 2022.

We drove strong top line and profitability growth.

Launched a groundbreaking technological innovation in there.

Announced marquee booster partnerships continue to expand our global retail footprint and grew consumer and provider interest in demand around the world.

With our planned investment phase largely behind US. We can now has intended turned to driving profitable growth in 2023 and beyond and we will continue to lead the way in this booming category of beauty <unk> wellness and health.

I couldnt be more excited about the future of beauty health and with that I will now turn the call to land.

Thank you Angela and thank you everyone for joining the call.

I also like to take a moment to thank our teams and partners around the world, We exceeded top line expectations for the eighth consecutive quarter and we continue to see momentum building across the business.

Macroeconomic uncertainty.

Today, I will walk you through our fourth quarter and full year results.

Cost and balance sheet highlights and finally, our outlook for 2023.

Turning to net sales of flight April they.

We delivered net sales of $8 1 million.

It's clear up 26% year over year.

This was driven by continued strong global demand for both delivery system and consumables as you can see despite the negative impact of China shutdown and foreign exchange headwinds, we had full sequential net sales growth throughout the year when excluding a significant trade up south from there from the allowance during the second quarter.

For the full year, we achieved net sales of $365 9 million up 41% year over year or up 32% year over year, when excluding the Q2 trade ups out from somebody else U S launch.

On slide Nigel it was.

What drove strong double digit growth across all three of our regions in 2022.

Looking at the fourth quarter in the Americas, We continued our expansion growing 29% year over year driven by the continued success of both nerf and their placement and tradeoffs in APAC grew 33% year over year, highlighting once again, our tools that my first one is in China, while operating the business.

In a difficult environment.

In the fourth quarter, there was a surge of COVID-19 infection surely after reopening, but he's out in China, effectively shutting down again post Chinese new year, but China reopening and in fact, it population largely recovered we're starting to see increasing demand with our providers.

In EMEA, our fourth quarter net sales grew 12% year over year growth would have been even stronger if not for an approximately $2 million constant currency foreign exchange headwind during the quarter sentiment to start the year strong and we expect this to continue throughout the region in 2023.

Even the promising trend, we're seeing in APAC and EMEA, we look forward to launching <unk> internationally in the second quarter of 2023.

Briefly touching on our Kpis on slide 20, we ended the year with a network of 25336 delivery system, an increase of 24% year over year.

2060, 70, and every system in the fourth quarter, nearly 10% of those peripheral sales where trade ups, which is an increase compared to the third quarter due to a testing slightly deeper promotions in Q4 versus Q3.

As Andrew mentioned, we believe all of our providers should be you can deal with some deals set to be global this year, we expect to continue promoting Sunday of adoption amongst our existing provider base with trade up effort in 2023.

We have experienced no issue with our pricing power across delivery systems and customer both the average selling price or ASP alpha delivery system for the quarter was 24408.

The blended ASP for 2022, 23832, representing an 8% year over year increase versus 2021 in line with our high single digit expectation.

Lastly delivery systems revenue for the quarter was $50 7 million, resulting in 19% year over year growth.

Some of US revenue came in at $47 4 million growing 35% year over year.

I want to take a moment on slide 21 to discuss how we evaluate the performance of our consumables.

As you can see from the chart on the left we have demonstrated a sustained upward trajectory in consumables revenue quarter after quarter.

On the right of the site you can see why there is a high correlation between execution and expanding our footprint and cluster of the consumable revenue.

Think of a continue to be in the high growth based off rapidly extending and selling their system. We view total consumables, south where else is a better measurement and a persistent utilization metric for our business.

As a reminder, we include one quarter's worth of consumables in the form of training kit for both new and trade ups and downs.

Recently, we have previously mentioned the longer rent and therefore, a longer tail of provider consumables consumption.

Steel and increasing that lifetime value, where it constantly introducing innovative new posters and other product line extensions to stay nimble and increase the value delivered to consumers at each visit.

Moving to slide 22 for the fourth quarter, we reported a GAAP gross margin of 66, 4% or 72, 3% on adjusted basis.

For the full year GAAP gross margin was 68, 4% or 73% on adjusted basis.

These margins declined year over year on a GAAP and adjusted basis, driven by trade up make costs associated with Sunday lunch.

Lunch and international launch readiness.

Including trade up volumes and premiums paid on a salaried at manufacturing and shipping.

Mobile supply chain challenges inflationary pressures and foreign exchange headwinds.

Mentioned previously where you expect to drive gross margin expansion in 2023 as part of our journey towards an 18 to 20 per cent 2023 EBITDA margin.

Even the similar dynamics at play with some bail international launch we expect the gross margin for the first two quarters of 2023 to be similar to their respective quarters in 2022 with expansion occurring sequentially in the second half of 2023 posts International <unk>.

Moving to the bottom right, we delivered adjusted EBITDA of $16.3 million for the fourth quarter and 47.7 million for the four year as Andrew mentioned, our profitability was impacted by FX headwind and zero Covid policy in China in 2022.

For help contextualize are kind of headwind reinvest at 70 million into our APAC operations in 2022, much of which was not productive due to the shutdown.

That advantage is that we now have the team and the infrastructure in place ready to seize the opportunity of the reopening.

We also encourage one time expenses of around 3.8 million in patent litigation expenses and approximately 3.6 million in reorganization expenses for the year.

I want to spend a few moments of by 23 to remind you of the seasonality in our business on.

On the left you see are sequential net cell growth pattern a.

Yeah typically starts with a Q1 that is lower than the previous year's Q4 and results in Q1 being the lowest dollar revenue quarter of the year.

The second quarter gains momentum from the marketing activities come back to in the first quarter, which typically results in a heavy sequential increase your revenue from Q1 two Q2.

In 2022, the second quarter benefited from U S lungs, and the tree that program, we anticipate a similar tailwind this year when we launched in daily in our international region in the second quarter of 2023.

The third quarter ceased grows a bit at a more moderate level relative to Q2 due to the season, though summer slowdown experience across the beauty sector, especially in the mirror.

Lastly, the fourth quarter is typically our highest dollar revenue quarter of the year.

Holiday promotions seasonally P consumer consumption and a desire to exhaust capex budgets drive higher demand.

Importantly, we make planned strategic investments in marketing early in the year to boost our productivity and support the stronger sales and margins seeing the second half on the right hand slide you can see how this translates to a quarterly Hayden of our adjusted EBITDA generation.

The seasonality would just walk through naturally makes the at the back have waited business away expect the quarterly EBITDA contribution in 2023 to be similarly weighted as it was in 2022.

I will now turn to a site 24 to walk through a cough detail.

Selling and marketing expenses for the fourth quarter, where $39 million compared to a 37.1 million in the fourth quarter last year. They increase is primarily due to a sales commission associated with higher revenue importantly, selling and marketing expenses as a percentage of revenue decreased 781 basis.

Point year over year, demonstrating increased cost efficiency via operating leverage from higher revenue.

Well, it's quarter G&A expenses of $28.5 million or 3.4 million higher year over year permanently as a result of increased stock based compensation personnel related expenses as we scale and professional fees relating to our socks implementation, partially offset by fixed cost leverage.

Lastly, R&D cost of $1.4 million decrease approximately zero point $4 million from 242021, two Q4 2022 as weight lapped so nail development costs, partially offset by plan investments in our data infrastructure.

I will now move to our balance sheet highlights on slide 25.

We ended the year with roughly $568 $2 million in cash and cash equivalents.

Our first of 200 million a salary to share repurchase programs launching September was completed during the quarter and retired at total of 9.3 million shares are.

700 million a salary share repurchase program announced in November is expected to be completed by the end of the second quarter of this year.

We remain well capitalized to execute on growth initiatives, while keeping strategic M&A opportunities actionable.

To that end, we're excited by our M&A announcement today with skin stylus and continuing to build on the promise of a connected portfolio of Gooky health brands to serve our customers and consumers, while keeping the majority of our dry powder for future growth.

To prepare for our international stay on a lounge, we invest a significant working capital in anticipation of straw treat up demand similar to what we experience at the outside of the U S in their lungs.

We anticipate lower working capital levels in the second half of 2023.

We continue to carry 750 million of 1.25% convertible notes do 2026 on the balance sheet.

Which way Opportunistically rates for M&A among other uses.

Are 50 million revolving credit facility remain central.

Finally, our current shares outstanding are approximately 132.2 million.

Turning to flight twenty-six fully in two years of planned elevated investments to achieve scale.

Our goal and strategic focus now shifts to generating operating leverage and accelerating growth in China.

We're proud of how fast we scale the business, while simultaneously achieving strong that sales and profitability growth in 2022, despite a macro headwinds.

With continue that momentum, India liver systems sell the international long trips and daily in the second quarter and resilient consumer demand around the world. We estimate to deliver a net sales of 450, 240 70 million for 2023 or 23% to 28% growth versus 2022.

With our foundation set we're confident in our ability to deliver an adjusted EBITDA margin of 18 to 20 per cent for 2023.

The chart on the right hand side of slide 26th demo Street, how we expect realizes margin expansion as you can see we expect to leverage our fixed operating cost space to January margin expansion, which you're already starting to see in the 2022 fourth quarter results.

Moving to gross margin expansion as mentioned during our investors day, we believe we have substantial gross margin expansion of opportunity to capture through valley engineering effort.

However, similar to what we saw in the first half of 2022, we expect the impact of tradeoffs. Since then they'll launch related promotions to create a temporary headwinds to our first half of 2023 gross margin.

Despite this we expect our continued valley engineering progress in 2023 will show in the result in the second half of the year and result in full year gross margin expansion versus 2022.

We continue to raining discipline cautious and measured performance in China and should the region a salary faster than currently anticipated. We're cautiously often mystic about achieving of 2023 adjusted EBITDA Arjun towards a higher end of our guided bridge.

While 20 twenty-two wasn't year of great achievements. It was made more remarkable by the fact that we're overcame macro economic headwinds beyond our control our business overall continue to grow and all consumers around the world showcase their resilience.

I'm very proud of what we accomplished in 2022, and we look forward to continuing to execute on our strategy to drive profitable growth in 2023 beyond.

Andrew and I will now gladly take your questions Alberta.

We will now begin the question and answer session to ask a question you marry Crestar then one on your Touchtone phone.

If you're using a speaker phone please pick up your handset before pressing the key to withdrawal from the question queue. Please press northern too.

Reminder, please limit yourself to one question.

First question is from all of our chance of calling please go ahead.

Hi, This is Joan.

For taking our questions. Congratulations on the acquisition just wanted to get more color on the potential synergies you expect from the new acquisition and also in terms of China, I know, you're giving a a range in terms of EBITDA, but in your model. How are you thinking about sort of recovery trend in China. Thank.

<unk>.

Thank you good morning, and thanks for the question Pickles Festival.

Slices of calls this morning.

Acquisition of skin stylus on S.

S B I T. It might've been needling device.

As I said in my prepared remarks, so with.

With our customer base micro needling is the most complementary service tools Hydrophane channel, but.

Many of our providers actively recommended prescribe a hydro facial preparing consumers for Micronesia is mentioned as soon as a team and an ultimate state. So I grew up with some absolutely perfect.

Perfect for the company and it because it is really leveraged our existing coal sort of me.

Maybe we can leverage to ourselves too.

I can put this product skin in the bundled with hydro <unk> and it was.

Just announced the deal will be working on integration.

Revenue in 2023 will be limited, but we expect upside in 2024 I couldn't be more excited.

Mmm her name is.

The second part of the question regarding too.

China in the eighties 20th.

Absolutely. Thanks, Yeah. So we're actually quite excited about in the some of the trend. We're looking at right now from a consumer demand opening point of view, but from auto assumption, we assume the very gradual opening and part of the emphasis we're putting out there is it.

Does come back stronger, that's where you see potential outside otherwise the model is based on a regular.

The next question is Bruce Jackson as a benchmark company. Please go ahead.

Hi, Good morning, and thank you for taking my questions and the last conference call you were discussing about maybe some new names.

Catherine.

And developing a more global supply chain, just because I wanted to give you a quick update thank you.

Good morning, Bruce and thank you very much for the question, yes, as we spoke before in previous schools 2021, and 2022 radios were a new public company with those years elevated investment appointment was setting up.

Systems and infrastructure uneasy CPL in Europe as well as during Q4, we completed the market manufacturing in China for the APEC region, which we're very excited about as we look to.

Enhance our margin from this year in the coming years ahead that will be.

Jordan components, so we completed that during Q for Bruce.

The next question is Sir John Block of Stifel. Please go ahead.

Thanks, guys and good morning.

The system is delivered in the quarter was 2067 cents. Please wait in line.

With our estimate.

And being installed base was below.

Freedoms were a bit higher based on your commentary, but maybe you can just detail for us to do retirements pick up a bit to get to the ending install base.

Instead of a tack onto my question would just be can you discuss the fourth quarter system ESP.

I believe that was down sequentially. So I'm not talking about you over Europe excuse to get them to be clear that we go into over too, but it also been part of the comments last quarter you took place recently.

On the system. So please provide just color on the three two to four two ISP Boo and I'll stop there. Thanks guys.

Yeah, absolutely Hagia in terms of the net installed base. John you know, we can calculate the turn based on purchase pattern and given the shutdown period for China, specifically and you know some of the other APEC region country that negatively impacted the net.

Install base, that's one of the biggest factor you know obviously, we continue to look at you know across the globe as well as we measure the term <unk>.

Separately I think your second question.

Sorry remind me again, the second question with them.

The <unk> you for 222 versus review twenty-two was down sequentially in light of what I produce recent price increases maybe you can just reconciled but more so I can.

Absolutely so the AFC as we mentioned they actually did go hand in hand with the gross margin trained as well as we kept alert on the promotion for tradeoff Ray remember, we talked about you know when the wrath of a tradeoff only lunch and then wait when very shallow in terms of the promotion Q3 <unk>.

<unk> and the television slightly deeper discounts, we saw it does move the needle, but I'll be in payback negatively impact the ESP as well as gross margin. There's also partially as you recall were also marketing. These refurbish you need the last generation system to different regions. So between distributor.

Ourselves you know given the shutdown in China and some of these refurbishing the.

The decent to the tradeoffs those were the drivers actually move the needle when it comes to AFP for Q4.

The next question is living your tongue Raymond James Please go ahead.

Great. Thank you good morning can I talk about the launch of tomato internationally, maybe compare and contrast, your plans relative to the U S long is because.

Three different environment now versus last year, when you watch the U S. And then just your thoughts on the consultation from U S. And you are to have some dale. Thank you so much.

Good morning. Thank you for your question, Yes, we're excited to launch window and Q2 of 2023, I think the benefit of US waiting a year is that we've got all the benefits from the learning on the optimizations, we've made to him flavor from the U S.

To launch it out sequentially.

Globally from Q2 onwards, the rolling launched focused on key markets Festival. So we're excited about that.

The second part of the question ma'am.

The second part of the question in terms of the U S contribution yeah. So.

Olivia as a model of the year, you know U S growth is continuing to be tough online for us.

Kind of emphasize the fact that everybody should be on Sunday. All this is precisely the reason why was interesting tradeoff program as a launching globally. The fact that we are value engineering, we're optimizing we're actually learned a lot with this Iot product. We continue to believe U S player very.

A significant part you know as we emphasized a lot of upside actually really truly depends on the age had regions Ah how strongly it comes back so that's where it really the potential upsides will lay for the year.

The next question is from Margaret Kasmer of William Blair. Please go ahead.

Good morning, everyone. Thanks for taking my questions.

I thought I would start maybe with with the grocery operating margins just kind of.

W delegates on the on the cadence during the year you know it should we assume kind of adjusted EBITDA, maybe is below the range in the first half and would it be anywhere near as much below kind of <unk>.

2022 numbers amount above the arrangement. So I can have all of that leading to this question of could you reach I guess in the mid twenties to finish the year. This.

Severe thanks.

Hey, Margaret to answer that question, we really wanted to be clear in terms of the seasonality you know when you look at Q1 being lowest quarter of the year and the fact that we're launching globally and <unk> I think you know a widow the less now we're going to be making a marketing to support.

The growth all of which will speak to the higher investment for the first half of the year and that also goes hand in hand with margin gross margin right. The fact that we're gonna push straight up.

Emphasize this all year last year S U at tradeoffs it's.

You know incrementally.

Positive flow through a from a gross margin person's point of view. It will give you a temporary negative impact so with that in mind, absolutely to confirm your Coleman is going to be very much a bad year heavy for 2023.

The next question is from <unk> of J P. Morgan. Please go ahead.

Hi, Thanks for taking my question I just wanted to follow up on a question that was asked earlier on the call. Just in terms of you know I guess the mix of new systems and churn in the quarter. You know you highlighted the China was one of the challenges there. So when I think about you know the trends you received from China. So far.

Far in the first quarter, you know it sounds like <unk> is it appropriate to think that we're seeing that more gradual improvement that you're assuming near the bottom end of your guidance and then also when I think more broadly about your assumptions for the year. When you think about that for $50 to 470.

How should we think about that when it comes to the mix of growth you're seeing between systems and consumables.

Good morning, and thanks for your question I'll start with China, and then end up to Julia and I think what we're seeing is obviously, we're in constant contact with our team on the ground in China people with we're hearing is that after initial surge in COVID-19 infections off the reopening as we get into late February the market now.

Pretty much fully Iceland, but during the last two or three weeks you've seen traffic gradually picked up at all all seem estimates, it's about 80% of pre COVID-19 levels at this stage so with that we've taken a measured approach factoring in a limited contribution for China in the earlier part of the year, but remain cautious.

<unk> optimistic about Q2 and beyond and of course, we're excited to launch in that in that market during Q too and of course, the rebound insurers more accelerated than originally anticipated.

Second half to be here again stated earlier, that's when we'd be looking at more of the <unk>.

20% higher range of adjusted EBITDA guns with 2023. Moreover, should the market deteriorate will quickly take steps to just leave it as an investment to protect the bottom line.

Yeah, and then I think thats well summarized I think the motto just confirms that right unison Q1 is almost over the fact that nothing really happened to you after Chinese new year kind of give you a sense of why we emphasizes of gradually opening and you have to keep in mind.

And the provider is a very much focused on you know.

Hiring engaging their consumers and utilizing whatever the inventory they have at hand, so we took that into consideration. His both of the revenue upside in the EBITDA upside hi, pretty closely to how robust rail reopening will be.

The next question is from Karen Maguire of Piper Sandler. Please go ahead.

Hey, good morning, congrats on the quarter and thanks for taking the questions Uhm. So first I I'd like to touch on you've spent a lot of time overseas the past year really understanding the market and preparing them for some data can you just talk about what visibility you have into system placement in these international Mark.

<unk> once you do lunch in the second quarter.

<unk> some of the partnerships you you've developed will help here, but any color there'll be helpful. And then secondly decided marketing can you just expand a bit on your ability to flex on marketing dollars say, we do head into a tougher downturn or China. You know it goes back and into Lockdown can you just talk about your ability to be flexible.

With that marketing sent to maintain the margins. Thank you.

Good morning, and thanks for the question Greg speak to say once again I will kick off and then the second part of the question I mean, clearly despite the economic backdrop of last year, we're extremely pleased with the way.

International markets perform particularly of 16 direct market would you consider.

Plus 46% for the year. Despite the war despite the ethics headwinds would've been even more police migraine constant currency anytime despite China with zero Covid policy. We grew 24%. So clearly we're extremely excited to bring that Cindy.

Innovation during Q too I mean.

All the work we've done in the last two years and 21 and 22 investing in that plan infrastructure Bill obtain people training education Centre systems three bills in the manufacturing in China, I must say, we're really excited and cautiously optimistic about.

The year over seas, and despite that if we with Autopay expect a strong year in the U S where we have.

Medical Spa channels. So we're very cautiously optimistic about the year, yeah moderate you talk about the leavers, which can flex if it does you plan out yeah, absolutely and then just to add.

Even you know Andrew mentioned I think there were a bit more of the recession.

When they come to the end of the year, but it's just you know listening to the team around the world. It seems that it turned to be a bit more positive, but again, what we're being cautious and again the continuous officer.

Precisely as for sure before occurring we're sort of 50 50 split when it comes to fixed and variable and even on a fixed side of the equation.

It's a lot of people call so to Angelus point, if the market shut down <unk> you can see it when it comes to variable it's very much under our control.

There are certain things in.

In terms of investment, but we can pull that lever.

Flexible around the globe.

The next question is from Ashley Hogans Jeffries. Please go ahead.

Good morning, its Blake on for Ashley.

Missed it but I was wondering if you could provide any commentary on your.

Revenue contribution firms and Dave from new placements for start ups throughout the school year 2023, just wondering how to think about that.

We could get any kind of commentary there and then also just wondering if we could get an update on what are you seeing in the terms of the health of your end-consumer here in the U S.

How 'bout shredded throughout the quarter. Thanks, so much.

Thank you have like I'll kick off with the second part of the question and then Leann.

Handle the first book I must say, you know well no businesses totally recession or economic I'm certain proof.

We found that our consumer and I'll provide has been extremely.

Resilience.

And we've seen as you've seen in a result.

No slowdown in the demand for hydro Facebook is approved <unk> and our results and I think there's obviously a few factors behind the I think first of all if you consider channels.

Extremely democratic plus.

When compared to other aesthetic services and many of our customers. So we're really I do expect gateway.

Product for entering aesthetics, and reduce it a little bit I think of trade down from higher price products into hydro facial I think consumers may.

Maybe cutting back in other areas, but certainly not willing to cut back and that monthly hydro facial it's an investment in itself.

Confidence so today, we've seen noticed slowdown I think we're benefiting really from the zoom boom and other broader shifts and then somebody I talked to Nicole about this medicalization of beauty, where consumers are increasingly interested to stop beyond perhaps the wellness trends of the past few years and seek out <unk>.

Physician and scientific endorse products, such as hydro facial and with really well captured.

Really well positioned to capture that shift I think the final piece of the U S.

The medicine channel is booming is the key channel for us.

<unk> recently published that between 2018 and 2022, the men's sports channel in U S, 462% significant right somewhere and is a big part of our business somewhere on that journey with all of our providers growing a zebra.

Yes in terms of trade up in Alaska cause other dollar pretty specifically for the second quarter, it's over $20 million and that's the biggest quarter that we had the tree that impact.

It back and just think about how many system, we sold in terms of a person.

It's roughly about 20% for the year of 2022.

The next question is from Kyle rows of can record. Please go ahead.

Great. Thank you for taking the questions. This morning.

I wanted to just touch on two things one the acquisition I'm wondering if you could give us just an expectation for how we should think about the revenue contribution over the near to medium term as it folds in.

And then secondarily, you really impressive leverage in the queue for obviously, a seasonally strong with with with the revenue number there, but just was impressed by the sales and marketing leverage given.

All of the initiatives you have going on so we would just be helpful to understand how we should think about some of those incremental spend as we move through 2023.

Thank you very much.

Good morning call in again, thanks to your question I will take off in terms of skin silence I played with with with just announced it we're very excited about it with absolutely convinced that this migraine devices that are different than anything else in the market, but it's an early emerging stage technology.

So I think what you'll find is that we'll have in 2000 twenty-three limited revenue upside that we have you know obviously.

And a significant plans for this ahead for 2024 and beyond and I think in the coming months during medicals I'll update you on the successful integration of more you can expect from skin status, but it's the perfect fit for our businesses. So complimentary to hydro facial our sales team <unk>.

Really great fit for Us man.

So when it comes to marketing you know last year within Emphasising, our own seasonality, we're always in that heavier in the beginning of the year and we anticipate that labourers to pay off in the second half and you just sort of seeing that during the fourth quarter. When it comes to 2023, you know clearly there's committed events that way in.

That's upfront you can see and pass the night, Angela sharing and especially with the second quarter of long. So there is a lot of pre can F. Three plan event around the globe.

At play, but when you look at a second half there's a lot of leverage we can pull a lever we can pool.

Double down and getting more you know lead me in order to convert but then we can maybe decide how how big or small we can go when it comes to trade shows and other more physical activation.

The next question is from Nirvana tie of BNP Parabola. Please go ahead.

Hi, Thanks for taking my questions Uhm, just a question on China.

Comment on that.

So shall we see further investment in China.

<unk>, what's the timing.

U S. My second question is have you seen all do you expect to change.

<unk> pressure and just a final quick one do you plan to meter acquisitions.

Double digit range in 2023, thank you.

Thank you. Thanks for your question, there's a <unk>. So let me stop festival with China, if you're relatively new until a story. We've said the 21 and 22 of the new public company, where our years of elevated investment, where we set up globally, our infrastructure systems on local manufacturing.

Training education, and teams, which we did and 21 and 22 and especially in 2022 in China. So the.

Presumably the bulk of our investment is done in China, and that's where we're so well positioned now to capture the opening growth as this market starts to open, especially as we launched in day and Q2 across the region.

Yeah, I think the other question that you had in terms of acquisition with always.

Look through those three criteria that Andrew has mentioned it has to be a credit to the bottom line and need not to be a sad.

And they need to have them come in <unk> and we continue to be very mindful thoughtful in terms of our execution and then the final question I would say give us at about the guidance for the year I went to <unk> we.

Absolutely confident to deliver to make a scene and 20% adjusted EBITDA guidance, we gave for 2023.

Upper limit as we discussed earlier will be really dependent on China and also just reaffirming our long term 2025 guidance, which we gave hearing invest today. Thank you.

The next question is from Linda Bolton Wiser of D. A Davidson. Please go ahead.

Yes. Thank you I'm sorry, if I missed this but can you give an operating cash flow number four 2022, and then I know you mentioned some investment in working capital is there some kind of a rough outlook that you have for operating cash flow in 2020.

Three and then my second question is what are you. What are you seeing are learning so far regarding the connectivity and the data and analytics, you're able to have now with the connectivity of that new Sunday a device. What are you. What are you seeing are learning so far with that thanks.

Having the address that free cash flow question first you know we had spoke about we invested in working capital heavily in 2022, as we're getting ready to launch the nail globally as we learned if you recall the <unk> in the U S. We you know we ran out of inventory we were very quickly.

<unk> speed up and really and ship the unions out. So we're in a really good position as you can't officer of our inventory balance and obvious as you look at us with pay about $10 million in terms of interests with pay about $20 million <unk>.

Soon the EBITDA margin will be you know a guaranteeing 442023 that by definition should be in the cash flow positive physician. So then it all boils down to working capital. So once we have lunch globally in the second quarter, Linda our expectations really managing networking capital.

Closely and you should see you know more of a beneficial trend coming through the second half of 2023 with feel positive about cash flow generation.

Starting at the end of 2023.

Thanks, Linda and in terms of what we're learning coming up for nearly a year since we launched in the in the U S.

Owning a lot I think.

Learning adjusting it's giving us a number of insights firstly on the consumer and the number of.

Sort of more.

Depth of knowledge on the consumers helping us.

Develop new products and protocol, such as body, which is obviously going to be.

A key strategic leave us for US this year and also we're learning how to improve the system and the software and we're always iterating and learning and improving the system based on provide a feedback based on what we're learning of that data and.

That's why I again, I think it's another advantage why we waited for yeah before launching internationally, we're able to take all of those learnings and optimize that so that launched in queue to overseas and I think in coming quarters, which in the.

More insights with you what we're learning.

This concludes our question and answer session I would like to turn the conference back over to Andrew Sandwich for closing remark.

Well. Thank you everyone for your questions just the clothes are risks right confidence in the passport I think with our investments and are largely complete we have the infrastructure in place to deliver on our profitable growth strategy. I think we have an exciting year ahead, Whitsundays Q2 international launch differentiated partnerships drive.

Consumable sell and recruit new consumers to the bran, China's reopening and integration of skin silence. So we look forward to continued to execute some further on cancer leadership in 2023 and beyond the team will be available today for any additional questions. You have once again, thank you and have a great day ahead.

That kind of thing does that all concluded. Thank you for attending today's presentation. You may now disconnect.