Q3 2023 AirSculpt Technologies Inc Earnings Call
Greetings and welcome to the Air Sculpt Technologies, Inc. Third quarter 2023 earnings call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Dennis Dean of Air Sculpt.
You may begin.
Good morning, everyone and thanks for joining us to discuss air Sculpt Technologies' results for the third quarter. Joining me on the call today is the company's founder and executive Chairman, Dr Ear, and violence, and Chief Executive Officer Todd Magazine.
Before we begin I would like to remind you that this conference call May include forward looking statements. These statements may include our future expectations regarding financial results and guidance market opportunities and our growth risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press.
The release and the reports we filed with the SEC.
All of which can be found on our website at investors <unk> elite body Sculpsure dotcom.
We undertake no obligation to revise or update any forward looking statements or information, except as required by law.
During our call today, we will also reference certain non-GAAP financial measures, we use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release filed last night and in our most recent 10.
She went filed which will also be available on our website with that I'll turn the call over to Eric. Thank.
Thank you Dennis good morning to everyone and thanks for joining the call I'm very pleased with our strong third quarter results and our team's ability to execute with excellence on a global basis. We are also making great strides in growing brand awareness for air Sculpt and believe the investments, we're making now are important to our future success.
We look forward to a strong finish to 2023 and continuing to drive long term shareholder value.
On the innovation front as I mentioned during the last quarter call. We are early in the rollout of air scope left a facial fat transfer procedure that can eliminate wrinkles restore lost volume to areas of the face and provide more volume and less as you know the broader filler market is over $4 billion, which expands our already significant tam to over 11.
We have started the rollout of air scope lifts and about a third of our centers, including loved it and we'll continue to expand it to the rest of the centers over the coming months as we train up our doctors and educate our sales and marketing teams. While we are early in the process, we expect a meaningful impact in 2024.
Overall, our team is delivering consistent performance and executing on our key growth areas. Our strategy continues to focus on strengthening their scope brand accelerating our store openings and further enhancing our profitability as we scale our business both domestically and internationally with that let me now turn things over to Tom.
Erin and thank you to everyone on the call for joining US today I am very pleased with our third quarter results highlighted by revenue growth of approximately 20% year over year, which was well ahead of our projections and included case growth of 19% or.
Our volume and revenue growth for the quarter was led by our de Novo centers that opened over the past 12 months. This includes our 2023 de Novo cohort, whose average revenue in their first three months was the highest level in our history, excluding our 2021 cohort, which as previously discussed.
I had a pronounced benefit from COVID-19.
We're also happy to share that we saw a healthy five 3% increase in our same store revenue growth over the past year or so our same store growth was greatly affected by Covid baseline comparisons now that this is behind US we fully expect our same store growth to return to normal levels.
As a result of our strong third quarter performance and the strong demand. We continue to see we have increased our full year revenue guidance to $196 million, which is a 16% growth rate for 2023.
We also revised our 2023 adjusted EBITDA guidance of at least $45 million, which was an increase over our prior year forecast of 43 to 45.
Similar to prior calls I would like to provide an update on my three key focus areas for 2023.
As a reminder, they are one driving revenue growth, which includes ramping up our de Novo expansion program.
Strengthening the organization improving our processes to support a much larger a more robust freda centers and finally right sizing our cost structure to further increase our profitability.
From a revenue growth standpoint, our de Novo program continues to demonstrate strong and predictable performance with the opening of our San Jose, California, and Raleigh, North Carolina locations during the quarter.
We have now delivered on our goal of opening five new centers in 2023, including our first overseas location in London.
This is the most de novo's, we have opened in a single year, but more importantly, all five centers are performing at or above our original expectations I'm, particularly excited about our London location, where we have seen strong momentum.
Giving us continued optimism that this will be a flagship location as well as a gateway to other international markets.
I'm also happy to share that our 2024 de Novo pipeline is robust.
As announced during our last call. We will open at least six new centers next year, which includes locations in Detroit, Michigan, and Kansas City, Kansas, Our first locations in these states.
We're also announcing a new location in the Chicago land area. This will be our second location in this market, which will provide additional critical mass that will enable increased brand awareness and operational efficiencies.
Look forward to sharing more about our de novo growth strategy.
And call.
Finally, as it relates to revenue growth as I noted above we are excited to see our business return to positive same store growth. This quarter now that the prior year comparison is no longer reflecting the anomalous consumer behavior related to COVID-19.
Comp center growth for the quarter as well as our average surgery price of $13600, which was above the high end of our range further reinforces our continued optimism that our unique proposition remains in high demand with no evidence that the broader economic concerns or the popularity.
The new weight loss drugs or having any adverse impact on our business.
I'd like to turn now to my focus area related to strengthening the organization and improving our processes as we reported last quarter. We have fully completed the additions to our executive team. We are confident that these additions will make the business much stronger and will allow us to grow faster and more efficiently in the years ahead.
We're also rolling out Salesforce, which will take our sales and marketing processes to a completely new level.
Historically, our processes have been very manual and tracking relevant kpis has been very difficult and inefficient.
Salesforce will provide us with more real time data.
Allow us to better analyze our sales and marketing performance, both of which will further help drive growth.
We anticipate this implementation to be completed by the end of the first quarter of 2024.
Let me turn now to our cost management efforts. Our stated plans remain on track, which will enable us to fully achieve our plan of $2 5 million of cost savings in 2023 with a run rate of $5 million as we exit the year.
Clearly our cost savings efforts are helping put us on a path back to achieving our historical EBITDA margin levels of 30% plus however, these cost savings efforts combined with our strong business performance.
Also given us the opportunity to invest in brand awareness efforts, which have a long tail impact on business performance.
Our first significant brand awareness initiative was earlier this year with actress and television personality Jenny Mccarthy given the strong consumer response to this effort we invested in a second celebrity initiative with singer dancer actor and television personality Joey Fatone, a member of the popular band in sync.
To the surprise and delight our fans are banned recently reunited it at the 2023 MTV via meetings to present Taylor Swift The award for Best Pop video shortly.
Shortly after disappearance. They released their first single in 20 years for the upcoming trolls movie and sparked rumors of a potential reunion tour.
Joey Fatone Air Sculpt initiative is just hitting the market and we will build further momentum through Q4.
Joe We had air sculpt on his full abdomen to remove stubborn fat hiding his abbs waste and hope leaks and to help them develop a more chiselled jaw line.
While Joey has wide appeal. We also believe there is a significant opportunity to drive our penetration with men, who are becoming much more comfortable with the static procedures and only make up 10% of our business.
In summary, I am very happy with the Companys performance, our focus on improvements in our long term growth prospects all of which will provide meaningful value to all of our key stakeholders.
With that I would like to turn the call over to Dennis to provide further details on the quarter.
Thanks, Todd our revenue for the quarter was $46 8 million to 23 increase over the prior year quarter. Our growth was led by approximately 19% increase in our case volumes, which was primarily due to the addition of seven de novo centers versus the prior year base as of September 30th 2023, we operated 27 centers.
<unk> versus 'twenty at the end of the third quarter of 2022.
Our same store revenue grew by five 3% from the prior year period, which was in line with our expectations and mostly driven by volume increases we continue to be encouraged by the demand. We are seeing we expect to achieve mid single digit comp growth in the fourth quarter.
We are pleased with our recent same store revenue growth. We continue to believe that the opening of new centers remains the primary growth vehicle.
Got it.
Average revenue per case for the quarter was 13658, a one 1% increase over the prior year's quarter and a 300 dollar increase over the second quarter of 2023, driven primarily by our procedure mix.
While we continue to target of 12% to $13000 average sell price, we do expect quarterly fluctuations in this average.
Our percentage of patients using financing to pay for procedures was approximately 50% during the quarter.
This was a slight increase over recent quarters as we've added new financing vendors to our mix of offerings to patients. These new vendors have higher financing approval rates and allow patients to potentially finance higher dollar amounts that our existing financial resources.
Just as a reminder, we received full payment on all of our procedures upfront you do not have any recourse related patients who can answer their procedures.
Our cost of service as a percentage of revenue was 38, 8% versus 38, 3% in the same period last year and our customer acquisition cost for the quarter was approximately 2750 per case as compared to 2000 and 650 in the prior year.
As Todd mentioned, given our strong topline performance this year, which has to further invest in our brand awareness activities, which is reflected in our increased customer acquisition costs. During the quarter. We continue to expect our customer acquisition cost to decrease over time as we begin to benefit from these and other brand awareness initiatives.
For the quarter, our adjusted EBITDA was $9 1 million compared to $8 1 million from the prior year period, an increase of 12, 2%. Our adjusted EBITDA results. Now include the impact of Preopening costs for de Novo centers in our calculation.
This impact was approximately half a million dollars in the current quarter and $1 1 million in the prior year quarter.
As a reminder, this change in presentation does not impact our reported cash flow or our leverage ratio as calculated under our credit facility.
Our adjusted EBITDA margin was 19, 4% compared to 28% in the prior year quarter, a decline of 140 basis points. Our margins were impacted by 200 basis points related to our brand initiative investments during the quarter. Additionally, we saw a 90 basis point impact related to investments in our executive team.
From a liquidity standpoint, our cash position as of September 32023 was $8 7 million and our $5 million revolver remains undrawn.
During the quarter, we voluntarily prepaid $10 million on our outstanding term loan debt. This decision was made as a result of our strong free cash flow generation, which allowed us the flexibility to opportunistically strengthen our balance sheet and reduce our interest expense going forward.
Our gross debt outstanding was $73 $4 million and our leverage ratio at the end of the quarter as calculated under our credit agreement was one six times.
Cash flow from operations for the quarter was 600000, which included a quarterly tax payment of $3 5 million. Additionally, cash paid for interest increased approximately 135000 with prior year quarter due to the increase in interest rates and we expect to achieve cash interest savings of approximately 750000 annually going forward, reflecting the <unk>.
Recent debt prepayment.
Also during the quarter, we invested $2 1 million primarily related to opening new centers.
We remain on track to post healthy free cash flow generation in 2023, and expect our cash flow from operations to adjusted EBITDA conversion ratio to be in the range of 65% for the full year.
Additionally, we provide a non-GAAP measure, reflecting adjusted net income per share diluted for the quarter at <unk>. We believe this measure presents useful information to investors by highlighting the impact to earnings per share of selected items used in calculating our adjusted EBITDA.
In early October we announced an update to our 2023 revenue.
Whereby we increased our 2023 revenue forecast to approximately $196 million versus the prior revenue guidance range of $187 million to $192 million.
This morning, we are Reconfirming, our 2023 revenue forecast of approximately $196 million, which would represent a 16% increase over 2022.
We are also reconfirming, our revised 2023, adjusted EBITDA guidance of at least $45 million, which was an increase over our prior forecast of 43% to $45 million.
Our guidance implies an adjusted EBITDA margin of approximately 23%.
With that I'd like to turn the call over to the operator for some questions operator.
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The first question is coming from Josh Raskin of Nephron Research. Please go ahead.
Hi, Thanks, good morning.
First question is if pricing continues to come in a little bit better than expected could you just refresh us on what percentage of consumers that are adding on additional services when they come in and then is that pricing strength consistently across all the centers are a few outliers really driving that trend.
Hey, Josh it's Dennis.
As far as add ons are fat transfer.
Additions is which is our main add on.
Pretty consistent about 20, low 20% from that standpoint.
From that standpoint, it really hasn't it does has it related to like add ons as just really overall procedure mix has been has been pretty solid.
Yeah, Josh this is Todd.
You know it also tells us that there really isn't any kind of headwind or concern.
From an economic standpoint, I mean people are coming in they're doing multiple areas, they're willing to pay a price point so it.
It sounds like were trying to to drive up the price, but ultimately that's what the demand is and it tells us that there is healthy demand at our price point, but it will typically look we're going to see fluctuations. We typically as we said target between 12 and 13.
<unk> seen a little bit higher than that this past quarter, which obviously were happy to see but that's purely demand but it.
It fluctuates and will fluctuate based on demand, but obviously were happy to see it and it's a good signal of the lawsuit.
Not real any concern economically broader economically.
Affecting our business.
Alright, that's helpful. And then just second question for me I know, Tom you talked about centers opening in smaller geographies as you know opportunities as you kind of roll out I'm thinking about 2024, as an opportunity and I heard the comments about the new centers in Detroit in Kansas City, I know, obviously, Chicago, a big market. So those didn't striking is sort of smaller opportunities I'm just curious.
If you think that's a shorter term phenomenon or do you think thats still more into the future.
Yeah, what I would say is that.
Nomenclature I think is probably not best to say smaller I think what I would say is there's plenty of opportunity for us to do centers that are comparable to.
What we've done historically, there's a lot of runway left for that all that being said, we know that there are markets, where there is probably opportunity to do.
No.
A lower <unk>, but still very healthy and our return.
And we're exploring those that isn't necessarily.
Our focus for next year, because again, we have lots of runway of our.
Higher <unk> de novo's, but it's something that we're looking at and we're going to probably experiment with over the coming year or two.
Other thing I would say, it's not just <unk>.
A double click on my my comment that I made before which is.
The opportunity also to open multiple locations in a given geography is going to be really cigna.
Significant for us to have one location in a market like Chicago, where we have today, it's a very big market now as I noted, we're going to be opening up a second location there. So.
It's not only an opportunity to drive growth, but it is an opportunity for us to drive brand awareness to drive efficiencies of operation. So that's really the way we're thinking about it but.
The smaller de Novo opportunity is something that we're still kind of looking at it isn't necessarily on our short term or short term radar.
Alright, Thanks, Bob.
Thank you once again, ladies and gentlemen that is star one if you would like to register a question. The next question is coming from Karen Wolf Meyer with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking the question.
Firstly I'd like to touch on the commentary in the prepared remarks about Eric sculptor last it sounds like you do you expect that to be.
Pretty meaningful in 2024 can you just explain what youre expecting in terms of how many.
I will add that on their procedures and what kind of.
Pricing up targets is that compared to like a standard treatment. Thank you.
Oh, Thanks, it's Aaron Rollins' first of all.
I see almost every patient that gets aeroscope doesn't aeroscope lift Canada, because most of our patients get other cosmetic procedures are very few of our patients are complete cosmetic procedure aesthetic virgins and.
To throw away their fat.
Artificial fillers when we know they are probably not the best thing for you.
It seems ridiculous to me so I mean, I think the opportunity is great.
It's something that we have to roll out it's something we have to market right now we're doing a good job of training our doctors, we're now training.
Our sales and we are training, our doctors to explain it to patients as well at a console.
From a pricing standpoint, we've made it priced very attractively.
It's about the same prices irregular filler so it's $500 per area. So on a volume basis I'm sure you know fillers.
Only get one cc kind of per per monetary increments. So we don't we can give someone as much as maybe she sees as a need for a particular area. So it's a great value and as I'm sure you know it lasts longer.
And we think it's a far healthier options. So that's the most I can tell you right now we don't have financial projections for it yet it's a little early for that but we're very excited about the opportunity and I am sure. Many of you have seen.
It will be articles at least in the British papers.
About fillers in lymphatic drainage, so it's something we're watching keenly.
Very helpful. Thank you and then if I could just touch on the SG&A and kind of the marketing spend that you're doing.
I mean, the track continues to Hum up even though you say, it's eventually going to come down.
And SG&A came in a little bit higher I believe in this quarter than we were expecting so can you just talk about when we're going to start seeing some better leverage and opex and when we'll start seeing that capex start to come down is that really going to be like a 24 or that may be pushed to 'twenty five.
How early are we going to start seeing some more leverage there. Thank you.
Hey, Karen it's Dennis Thanks for the question.
One of the things that we did call out is we did some.
Really kind of our first time into what we would call a little bit more major brand awareness activities with our Gina Mccarthy and his Todd also pointed out Joey Fatone and.
So those impacted our numbers in the quarter.
They were a little bit more of a what I would call. One time type of event. So it doesn't mean that we're not necessarily going to do them in the future and do more of those potentially but but from the standpoint of historically comparison that was kind of a onetime event.
It cost us about 200, bips from that standpoint, as far as margins are concerned so.
That's one aspect of it.
We do believe that brand awareness is is our number one opportunity for driving.
Significant, particularly same store growth, obviously de novo growth has been or our major growth factor, but but brand awareness is going to be significant for us and we've been heavily heavily focused on that so that's one aspect of it which caused the cash to go up a little bit during the during the quarter that's going to fluctuate.
It's going to fluctuate with seasonality, it's going to fluctuate with volume and its going to fluctuate with quite frankly opportunities that we see as great investments to further the brand and as far as G&A.
Todd talked about last quarter and again in his remarks today, we've done a lot of work in sort of building out the debt.
Executive team and so what that cost us about 90 basis points comparatively speaking there from the standpoint. So those are primarily complete now and so as we continue to grow revenue. Those those costs are now going to be part of a fixed number and so we'll begin to to grow margins off of that as well.
Okay helpful. Thank you.
Thank you at this time I would like to turn the floor back over to Mr Magazine for closing comments.
Great well, we appreciate everybody joining us this morning.
We are we hope you have a great weekend and we look forward to speaking you again very soon.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines have backed off at this time and enjoy the rest of your day.
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