Q1 2024 The Beauty Health Co Earnings Call

Operator: Hello and welcome to the Beauty Health First Quarter 2024 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to your host, Norberto Aja, Director of Investor Relations. Please go ahead.

Hello, and welcome to the beauty Health first quarter 2024 earnings Conference call.

Eduardo Rodriguez: At this time, all participants won't be it will be in a listen only mode. Later, we will conduct a question and answer session I will now turn the call over to your host Roberto Asher.

Eduardo Rodriguez: Investor Relations. Please go ahead.

Eduardo Rodriguez: Thank you, operator, and good afternoon, everyone. Welcome to Beauty Health Company's 2024 first quarter conference call. We will start in just a minute with management's comments and your questions. But before doing so, let me take a minute to read the Safe Harbor language.

Eduardo Rodriguez: Thank you operator, and good afternoon, everyone welcome to beauty health companies 2024 first quarter conference call.

Eduardo Rodriguez: We will start in just a minute with management's comments and your questions but.

Eduardo Rodriguez: Management may make four forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risk and uncertainties that could cause actual results to differ materially. Listeners are urged to exercise caution not to place some new reliance on any forward-looking statement. For further discussion of risks related to our business, see the company's filings with the SEC. This call will present non-GAAP financial measures; reconciliation of these non-GAAP measures to the most comparable GAAP measures is to be found in the earnings press release furnished to the SEC and available on our website.

Eduardo Rodriguez: But before doing so let me take a minute to read the safe Harbor language.

Eduardo Rodriguez: Instrument 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.

Eduardo Rodriguez: Listeners are cautioned not to place undue reliance on any forward looking statements for.

Eduardo Rodriguez: For further discussion of risks related to our business to the company's filings with the SEC. This.

Eduardo Rodriguez: This call will present non-GAAP financial measures reconciliation of these non-GAAP measures to the most comparable GAAP measures.

Eduardo Rodriguez: Are to be found in the earnings press release furnished to the SEC and available on our website.

Eduardo Rodriguez: Joining me on the call today is Beauty Health Chief Executive Officer Marla Beck, along with Chief Financial Officer Mike Monahan. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn the call over to our CEO, Marla Beck. Please go ahead, Marla.

Speaker Change: Joining me on the call today is beauty health, Chief Executive Officer, Marla Beck, along with Chief Financial Officer, Mike Monahan.

Eduardo Rodriguez: Following managements prepared remarks, we will open the call for a question and answer session.

Eduardo Rodriguez: With that I would now like to turn the call over to our CEO Marla Beck. Please go ahead Marla.

Marla Beck: Thank you Norberto and good afternoon, everyone and thank you for joining us.

Marla Beck: Thank you, Norberto. Good afternoon, everyone, and thank you for joining us. We are pleased to be with you today to review Beauty Health's first quarter results and the progress we are making on our business transformation. As discussed on our last call, we continue to drive towards rebuilding and restoring confidence with a focus on laying the foundation for future growth. While this transformation will take time, I am encouraged by the progress we are making towards our three strategic priorities. Sales, excellent. Operational excellence and financial disability

Marla Beck: We are pleased to be with you today to review beauty health first quarter results and the progress, we're making on our business transformation.

Marla Beck: As discussed on our last call, we continue to drive towards rebuilding and restoring confidence with a focus on laying the foundation for future growth.

Marla Beck: Well this transformation will take time I am encouraged by the progress we are making towards our three strategic priorities sales excellence operational excellence and financial discipline. Our teams are driven and focused and I am excited by the long term potential Judy health.

Marla Beck: Our teams are driven and focused, and I am excited by the long-term potential Judy has. Turning to our first quarter results, we had a solid start to 2020. First quarter revenues came in above our guidance midpoint with healthy, consumable sales. Profitability was also well ahead of expectations.

Marla Beck: Turning to our first quarter results, we had a solid start to 2024.

Marla Beck: First quarter revenues came in above our guidance midpoint with healthy consumable sales profitability was also well ahead of expectations driven by continued cost rationalization.

Marla Beck: Driven by continued cost rationalization. While we are encouraged by our progress, there is still more work to be done, particularly on the device side of the business. We addressed the core issues that impacted earlier versions of our Sendaios system with the release of Sendaios 3.0 last July.

Marla Beck: Well, we are encouraged by our progress there is still more work to be done, particularly on the device side of the business.

Marla Beck: We've addressed the core issues that impacted earlier versions of our Sunday a system with the release of some data three point out last July.

Marla Beck: Quality has improved significantly. However, our field teams and customer service teams are finding some technical issues, most of which are resolvable by phone or an in-field technical visit. In the last 30 days, we have brought in a seasoned operations leader who has decades of experience to rapidly bring our quality processes and our global production and supply chain processes up to superior levels. We will get this right over the next couple of quarters.

Marla Beck: But he has improved significantly however, our field teams and customer service teams are finding some technical issues most of which are resolvable by phone or an infield technical visit.

Marla Beck: In the last 30 days, we have brought in a seasoned operations leader, who has decades of experience to rapidly bring our quality processes and our global production and supply chain processes up to superior levels. We will get this right over the next couple of quarters. Our number one priority is to make sure our providers have the device.

Marla Beck: Our number one priority is to make sure our providers have the devices they need to serve their customers and maximize their revenue streams. We are committed to this every day. We remain acutely focused on improving our financial results and addressing our near-term operational challenges while building the foundation necessary to capture the significant long-term growth opportunities for our hero brand, Hydraface. For providers and consumers alike, Hydrafacial is beloved for its instant skin health results, scientifically proven clinical efficacy, and strong brand recognition.

Marla Beck: They need to serve their customers and maximize their revenue stream. We are committed to this every day.

Marla Beck: We remain acutely focused on improving our financial results and addressing our near term operational challenges while building the foundation necessary to capture the significant long term growth opportunities for our hero brand hydro facial.

Marla Beck: For providers and consumers alike hydro facial is a beloved is beloved for its instant skin health results scientifically proven clinical efficacy and strong brand recognition.

Marla Beck: Investing in Hydrofacial Treatment Devices offers providers the potential for a new revenue stream, increased traffic, and ongoing support by our business development and training. It is a treatment asked for by name across doctor's offices, med spas, single room estheticians, as well as retail and hospitality locations for healthy, glowing results every time. On our last earnings call, we introduced three key strategic priorities for 2024, including sales excellence, operational excellence, and financial discipline.

Marla Beck: And that's in hydro facial treatment devices offers providers the potential for a new revenue stream increased traffic and ongoing support by our business development and training team is a treatment ask for by name across Doctors' offices Med spas single room at citizens as well as retail and hospitality locations for <unk>.

Marla Beck: <unk> glowing results every time.

Marla Beck: On our last earnings call, we introduced three key strategic priorities for 2024, including sales excellence operational excellence and financial discipline, while early in this transformation I am encouraged by our progress.

Marla Beck: While we are early in this transformation, I am encouraged by our progress. Regarding our first priority, sales excellence, our field team has been successful in enhancing our strong provider relationships through best-in-class customer service and engagement. The Treatment Room is the center of our business, and providers and our sales teams are the face of the brand. We believe a consistent, personal connection between our experienced and tenured sales staff and our providers is a unique differentiator for the hydrofacial brand.

Marla Beck: Regarding our first priority sales excellence our field team has been successful in elevating our strong provider relationships through best in class customer service and engagement the treatment room as the center of our business and providers and our sales teams are the face of the brand we believe consistent personal conduct connection between our.

Marla Beck: <unk> and tenured sales team and our providers is a unique differentiator for the hydro facial brand.

Marla Beck: Putting the provider first, we've also allocated additional resources to support them. We've refined our training programs, giving our providers more accessible and convenient education opportunities to hone their craft and effectively grow their businesses. We've also expanded our technical and customer service teams, including the addition of 24-7 technical support in the U.S. and Canada to swiftly address the needs of our customers. In a study conducted in February, Hydrofacial had the highest NPS among branded capital equipment in med spas and traditional spas.

Marla Beck: And putting the provider first we've also allocated additional resources to support them, we've refined our training programs, giving our providers more accessible and convenient education opportunities to hone their craft and effectively grow their businesses. We've also expanded our technical and customer service teams, including the addition of 24 seven Technip.

Marla Beck: Sport in the U S and Canada to swiftly address the needs of our customers.

Marla Beck: And study conducted in February hydro facial has the highest N P S. Among branded capital equipment, and med spas and traditional spa.

Marla Beck: Additionally, Hydrofacial was recently named Aesthetics Vendor of the Year by our corporate partner Relive Health at their franchisee conference. This recognition is a testament to both the clinical efficacy of our treatment system and the world-class support of our field. Our providers continue to recognize the unmatched results of our treatment and the power of the hydrofacial brand to not only bring consumers through their doors but also to serve as a revenue multiplier for their business. As we look further ahead, we are more confident than ever in the hydrofacial potential, both in its current form and through innovation.

Marla Beck: Additionally, a hydro facial was recently named aesthetics vendor of the year by our corporate partner Reliv health at their franchisee conference. This recognition is a testament to both the clinical efficacy of our treatment system in the world class support of our field teams.

Marla Beck: Our providers continue to recognize the unmatched result of our treatment and the power of the hydro facial brand to not only bring consumers through their doors, but also to serve as a revenue multiplier for their business.

Marla Beck: As we look further ahead, we are more confident than ever in hydro facials potential both in its current forum and through innovation.

Marla Beck: Moving to our second area of focus, operations. As I mentioned on our last call, my focus from day one has been to streamline our operations, concentrating on our most promising growth avenues and instituting added rigor, accountability, and oversight throughout our supply chain. A comprehensive evaluation of our entire manufacturing and operational framework is underway. I look forward to updating everyone upon its completion later this year. To this end, we recently made additional strategic leadership changes.

Marla Beck: Moving to our second area of focus operational excellence as I mentioned on our last call. My focus from day, one has been to streamline our operations concentrating on our most promising growth avenues and instituted instituting added rigor accountability and oversight throughout our supply chain.

Marla Beck: Comprehensive evaluation of our entire manufacturing and operational framework is underway and I look forward to updating everyone. Upon its completion later this year to this and we recently made additional strategic leadership changes in April we appointed Shari Lewis to the newly created position of chief supply chain and operations Officer.

Marla Beck: In April, we appointed Sherry Lewis to the newly created position of Chief Supply Chain and Operations Officer. She is a talented and deeply experienced executive who brings decades of relevant expertise across global supply chains and operations, including at Medtronic. She will serve an important role in advancing our strategic objectives in this area. She is currently leading a comprehensive global supply chain review to drive continuous quality improvement.

Marla Beck: Sure. He is a talented and deeply experienced executive who brings decades of relevant expertise across across global supply chain and operations, including at Medtronic.

Marla Beck: She will serve as an important she will serve an important role in advancing our strategic objectives in this area.

Marla Beck: She is currently leading a comprehensive global supply chain review to drive continuous quality improvement.

Marla Beck: Regarding our third priority, financial discipline, our goal is to be cost conscious in everything we do, balancing our cost structure with revenue and opportunity. Operationally, this means tighter expense management and a reallocation of resources to high-impact areas of the business.

Marla Beck: Regarding our third priority financial discipline, our goal is to be cost conscious and everything we do balancing our cost structure with revenue and opportunity.

Marla Beck: Operationally this means tighter expense management, and a reallocation of resources to high impact areas of the business.

Marla Beck: Looking ahead, we see a number of compelling opportunities to drive long-term profitable growth by leveraging the tremendous power of the hydrofacial brand and our clinically proven treatment. Additionally, we see an attractive opportunity around consumables to drive further penetration. We'll be working through our long-term innovation pipeline. We will look at how we expand our offering to increase the efficacy and longevity of our results. We see a clear opportunity to grow our device-installed base by further segmenting our provider channels and offering unique value. We have exclusive offerings in our medical channel currently, such as our wet diamond tip and our medical-grade peel.

Marla Beck: Looking ahead, we see a number of compelling opportunities to drive long term profitable growth by leveraging the tremendous power of the hydro facial brand and our clinically proven treatments.

Marla Beck: We see an attractive opportunity around consumables to drive further penetration well be working through our long term innovation pipeline.

Marla Beck: We will look at how we expand our offering to increase the efficacy and longevity of our results we.

Marla Beck: We see a clear opportunity to grow our device installed base by further segmenting, our provider channels and offering unique value we have exclusive offerings in our medical channel currently such as our wet diamond tip in our medical grade appeal, we see an opportunity to expand our offerings treating each segment in a unique way. Additionally, we have meaningful clinical stuff.

Marla Beck: We see an opportunity to expand our offerings, treating each segment in a unique way. Additionally, we have meaningful clinical studies related to the efficacy of hydrafacial treatments, both historic and underway, that we will leverage in all of our stakeholders. We also see the opportunity to increase penetration in our existing markets to drive scale. We are looking at how we increase our investments in our direct markets to drive both provider and consumer adoption and retention.

Marla Beck: He is related to the efficacy of hydro facial treatments, both historic and underway that we will leverage in all of our stakeholder channels.

Marla Beck: We also see the opportunity to increase penetration in our existing markets to drive scale. We're looking at how we increase our investments in our direct markets that drive both provider and consumer adoption and retention of.

Marla Beck: Of course, none of these opportunities would be possible without our entire team's unwavering focus on delivering the highest levels of support and service to our providers and consumers. Our past and future success is predicated on this ironclad commitment. What gives me the most confidence in our ability to drive further improvements and growth while creating added value for our partners and shareholders is the quality of our team, including the recent additions we have made.

Marla Beck: Of course, none of these opportunities would be possible without our entire team's unwavering focus on delivering the highest levels of support and service to our providers and consumers our past and future success is predicated on this ironclad commitment well.

Marla Beck: What gives me the most confidence in our ability to drive further improvements in growth, while creating added value for our partners and shareholders is the quality of our team, including the recent additions we have made well.

Marla Beck: While we remain cautious in the short term as we work through the remaining headwinds, I believe the long-term outlook and opportunity for beauty health have never been more promising. I look forward to engaging with you over the coming quarters to discuss our progress. With that, I will turn the call over to Mike.

Marla Beck: We remain cautious in the short term as we work through the remaining headwinds I believe the long term outlook and opportunity for beauty health has never been more promising.

Mike: I look forward to engaging with you over the coming quarters to discuss our progress.

Marla Beck: With that I will turn the call over to Mike.

Michael Monahan: Marla. I will begin with a detailed review of our first quarter financial results and then provide an update on our financial guidance for 2020. Revenue came in above the midpoint of our guidance at $81.4 million, representing a 5.7% year-over-year decline. This was primarily driven by a slowdown in capital equipment sales across all regions, substantially offset by an increase in consumer... Gross margin was 59.4% versus 62.7% in the prior year period on a gap basis and 63.4% versus 70%, respectively, adjusting for non-cash expenses and certain ad backers. The primary drivers behind the decline on a gap basis were higher indirect product costs along with an increase in inventory-related charges. This led to an adjusted EBITDA.

Mike: Thank you Marla.

Mike: I will begin with a detailed review of our first quarter financial results and then provide an update on our financial guidance for 2024.

Michael Monahan: Revenue came in above the midpoint of our guidance at $81 4 million, representing a five 7% year over year decline.

Michael Monahan: This was primarily driven by a slowdown in capital equipment sales across all regions substantially offset by an increase in consumables.

Michael Monahan: Gross margin was 59, 4% versus 62, 7% in the prior year period on a GAAP basis and.

Michael Monahan: 63, 4% versus 70%, respectively, adjusting for noncash expenses and certain add backs.

Michael Monahan: The primary drivers behind the decline on a GAAP basis were higher indirect product costs, along with an increase in inventory related charges. This.

Michael Monahan: This led to an adjusted EBITDA.

Michael Monahan: $400,000 or 0.4% of revenue versus a $500,000 loss or negative 0.6% of revenue in the first quarter of 2023. During the quarter, we saw growth in overall consumable sales across all regions, offset by lower capital equipment. Global Equipment revenue declined 21.1% as we saw pressure across most of our end markets.

Michael Monahan: The $400000 or 4% of revenue versus $500000 loss or negative <unk>, 6% of revenue in the first quarter of 2023.

Michael Monahan: During the quarter, we saw growth in overall consumable sales across all regions offset by lower capital equipment sales.

Michael Monahan: Mobile equipment revenue declined 21, 1% as we saw pressure across most of our end markets.

Michael Monahan: While we continue to see strong interest in both our brand and products, we are seeing tighter credit and longer lags between lead generation and closing. During the quarter, we sold 1,417 systems at an average selling price of $25,253. This brings the total active machines in the field to 32,530 units versus 27,406 units at the end of Q1 2022.

Michael Monahan: While we continue to see strong interest in both our brand and products, we are seeing tightening credit and longer lags between lead generation and closing.

Michael Monahan: During the quarter, we sold 1417 systems at an average selling price of $25253.

Michael Monahan: This brings the total active machines in the field to 32530 units versus 27406 units at the end of Q1 2023.

Michael Monahan: Consumable sales grew 11.5% to $45.6 million, continuing to demonstrate the growing interest and appeal of hydrafacial from end consumers. However, from a geographical perspective, revenue in the Americas declined 5%, primarily driven by soft capital equipment sales due to credit tightening and customer caution. For the quarter, APAC revenue declined 12.1% to $12 million, while China accounted for $7.2 million of the region's revenue, a decline of 3.1% year over year. The decline in China reflects an 11.9% drop in new system sales, partially offset by an increase in consumables growth. We believe there is a great opportunity for growth in China, but we remain cautious in the near term.

Michael Monahan: Consumable sales grew 11, 5% to $45 $6 million continuing to demonstrate the growing interest in appeal of hydro facial from end consumers.

Michael Monahan: From a geographical perspective revenue in the Americas declined, 5%, primarily driven by soft capital equipment sales due to credit tightening and customer caution.

Michael Monahan: For the quarter APAC revenue declined 12, 1% to $12 million, while China accounted for $72 million of the region's revenue a decline of three 1% year over year.

Michael Monahan: The decline in China reflects an 11, 9% drop in new system sales, partially offset by an increase in consumables growth.

Michael Monahan: We believe there is a large opportunity for growth in China. However, we remain cautious in the near term. We are focused on developing a strong stable sales force and equipping them with the tools needed to grow the business.

Michael Monahan: We are focused on developing a strong, stable sales force and equipping them with the tools needed to grow the business. ESQ-1 revenue declined 2.9% to $19.1 million, with strength coming from consumables offset by lower new capital equipment. We delivered consolidated GAAP gross profit of $48.4 million, resulting in a GAAP gross margin of 59.4%. Adjusting for non-cash charges such as depreciation, amortization, and stock-based compensation, we achieved adjusted gross profit of $51.6 million for a 63.4% adjusted gross margin.

Michael Monahan: EMEA Q1 revenue declined two 9% to $19 $1 million with strength coming from consumables offset by lower new capital equipment sales.

Michael Monahan: We delivered consolidated GAAP gross profit of $48 4 million, resulting in a GAAP gross margin of 59, 4% adjusting for noncash charges, such as depreciation amortization and stock based compensation adjusted gross profit of $51 6 million for a 63, 4% adjusted gross margin.

Michael Monahan: <unk>.

Michael Monahan: We expect adjusted gross margin to be relatively consistent with Q1 levels for the balance of 2024 as we continue to work to evaluate and optimize our supply chain strategy. As it relates to operating expenses, I am pleased to report a decline of $6.1 million, down 8.5% year over year, as we continue to have success in more strategically managing expenses across the globe. Selling and marketing expense was down approximately 13% to $33.7 million, reflecting a lower marketing spend as well as lower compensation and sales commission. R&D expense was $2.8 million, up $500,000, while G&A expense was $28.9 million, down $1.5 million, with savings primarily driven by lower compensation and outside services expense. This resulted in a net loss of $700,000.

Michael Monahan: We expect adjusted gross margin to be relatively consistent with Q1 levels for the balance of 2024, as we continue to work to evaluate and optimize our supply chain strategy.

Michael Monahan: As it relates to operating expenses I am pleased to report a decline of $6 1 million down eight 5% year over year as we continue to have success in more strategically managing expenses across the globe.

Michael Monahan: Selling and marketing expense was down approximately 13% to $33 7 million, reflecting a lower marketing spend as well as lower compensation and sales commissions.

Michael Monahan: R&D expense was $2 8 million up 500000, while G&A expense was $28 9 million down $1 5 million with savings, primarily driven by lower compensation and outside services expense.

Michael Monahan: This resulted in a net loss of $700000.

Michael Monahan: Normalizing for non-cash items and certain discrete charges is adjusted even if it was $400,000, favorably comparing to a net income of $20.3 million and an adjusted EBITDA loss of $500,000 in Q1 2023. Moving to the balance sheet, we ended the quarter with approximately $444.6 million in cash. Through May 8, we repurchased $192.3 million of our convertible debt. As of March 31st, we have approximately $70 million remaining on our existing share repurchase authorization.

Michael Monahan: Normalizing for noncash items and certain discrete charges, our adjusted EBITDA was $400000 favorably comparing to a net income of $20 3 million.

Michael Monahan: And then adjusted.

Michael Monahan: And adjusted EBITDA loss of 500000 in Q1 2023.

Michael Monahan: Yeah.

Michael Monahan: Moving to the balance sheet, we ended the quarter with approximately $444 6 million in cash through May eight, we repurchased 190 to $2 $3 million of our convertible debt.

Michael Monahan: As of March 31, we had approximately we have approximately $70 million remaining on our existing share repurchase authorization.

Michael Monahan: We feel comfortable with our current liquidity position, and together with our board, we will continue to evaluate the best allocation of capital. Taking a look at inventory, we ended the quarter with approximately $95.7 million, an increase compared to $91.3 million in December 2023. The increase was primarily driven by additional inventory needed to build and deliver replacement 3.0 units to our provider base. We remain on track regarding our Sendai replacement program during the second quarter.

Michael Monahan: We feel comfortable with our current liquidity position and together with our board we will continue to evaluate the best allocation of capital.

Michael Monahan: Taking a look at inventory we ended the quarter with approximately $95 7 million, an increase compared to $91 $3 million in December 2023.

Michael Monahan: The increase was primarily driven by additional inventory needed to build and deliver replacement three point or units to our provider base.

Michael Monahan: We remain on track regarding our sundial replacement program during the second quarter.

Michael Monahan: As of the end of March, we estimate we will replace approximately 1,000 more systems for customers globally who qualify but have yet to receive their replacements in day or 3.0 system. Our March quarter end accrual for this Indeo replacement program was $8.3 million, down from approximately $21 million at the end of December 2023. Our warranty accrual of approximately $7 million as of March 2024 is in place to cover our total global systems, inclusive of extended Sundeo warranties we issued to support our providers during 2023.

Michael Monahan: As of the end of March we estimate we will replace approximately 1000 more systems for customers globally, who qualify but have yet to receive their replacements and day or three point of system or.

Michael Monahan: Our March quarter and accrual for this in Dio replacement program was $8 3 million down from approximately $21 million at the end of December 2023.

Michael Monahan: Our warranty accrual of approximately $7 million as of March 2024 is in place to cover our total global systems inclusive of extended Sunday of warranties, we issued to support our providers during 2023.

Michael Monahan: I would like to take a moment to reiterate the revenue cadence and seasonality of our business. Revenue is typically highest in the second and fourth quarters of the year. This is due to two factors.

Speaker Change: I would like to take a moment to reiterate the revenue cadence and seasonality of our business revenue is typically highest in the second and fourth quarters of the year. This is due to two factors first capital purchases historically, our largest in the fourth quarter as our provider base, often has clear visibility into their annual capital spend allowing.

Michael Monahan: First, capital purchases historically are largest in the fourth quarter, as our provider base often has clear visibility into their annual capital spend allowance by that point in the year. Second, the second and fourth quarters, spring and fall, often have the highest consumer demand for hydrafacial treatments, which we support with our consumables promotions in May and in November. Given the size of our business, seasonality has an impact on the cadence of our revenue.

Michael Monahan: By that point in the year.

Michael Monahan: Second the second and fourth quarters spring and fall often have the highest consumer demand for hydro facial treatments, which we support with our consumables promotions in May and November.

Michael Monahan: Given the size of our business the seasonality has an impact on the cadence of our revenue.

Michael Monahan: Yeah.

Michael Monahan: Regarding guidance, in the second quarter, we expect net sales to be $96 million to $102 million and adjusted EBITDA of $4 million to $7 million. We expect revenue to increase sequentially from Q1, but be down year over year in the second quarter, primarily driven by near-term global pressure on capital acquisitions. Additionally, in the second quarter, we face a challenging year-over-year comparison for system sales given our international Sundeo launch in the 2023 comparable period.

Speaker Change: Regarding guidance.

Michael Monahan: In the second quarter, we expect net sales to be $96 million to $102 million and adjusted EBITDA of 4 million to $7 million, we expect revenue to increase sequentially from Q1, but would be down year over year in the second quarter, primarily driven by near term global pressure for capital equipment.

Michael Monahan: Additionally, in the second quarter, we face a challenging year over year comparison for system sales, given our internationals and day of launch in the 2023 comparable period.

Michael Monahan: For the full year 2024, we are projecting revenue growth to be flat to low single digits year-over-year. However, we expect to deliver adjusted EBITDA of $40 million or greater. This guidance is consistent with what was communicated on our previous earnings call and implies a return to revenue growth in the second half of the year, reflecting improved provider confidence, a more favorable credit environment, and accelerating consumable sales. In closing, our goal is to execute with a simpler structure while exceeding the expectations of our providers, consumers, partners, and shareholders.

Michael Monahan: For the full year 2024, we are projecting revenue growth to be flat to low single digits year over year. However, we expect to deliver adjusted EBITDA of $40 million or greater.

Michael Monahan: This guidance is consistent with what was communicated on our previous earnings call and implies a return to revenue growth in the second half of the year, reflecting improved provider confidence more favorable credit environment and accelerating consumable sales.

Michael Monahan: In closing our goal is to execute with a similar simpler structure, while exceeding the expectations of our providers consumers partners and shareholders.

Michael Monahan: Our action plan is clear. We will increase our footprint through new capital equipment sales. We plan to increase consumable sales, stabilize the business, complete our Sendai 3.0 replacement program, and drive profitability. I will now turn the call back to the operator for Q&A.

Michael Monahan: Our action plan is clear, we will increase our footprint through new capital equipment sales, we plan to increase consumable sales stabilize the business.

Michael Monahan: Complete our Sunday, a 3.0 replacement program and drive profitability.

Michael Monahan: I'll now turn the call back to the operator for Q&A.

Operator: Perfect, thank you. If you would like to ask a question today, please press star 1 on your telephone keypad now. You'll be placed in the queue in the order received.

Michael Monahan: Perfect. Thank you if you'd like to ask a question today. Please press star one on your telephone keypad now you'll be placed in the queue. In the order received please be prepared to ask your question. When prompted once again, if you would like to ask a question. Please press star one.

Operator: Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press star 1. All right. Our first question comes from the line of Oliver Chen from TD Cohen. Please go ahead.

Operator: All right. Our first question comes from the line of Oliver Chen from TD Cowen. Please go ahead.

Oliver Chen: Hi Marla and Mike. Regarding the current situation of the machines in the field, why are some problems fixable by phone versus in person? And what's your expectation of the timing of having those issues resolved? And are they surprising you, or not really?

Oliver Chen: Hi, Mara and Mike regarding the current situation of the machines on the field and what are some problems fixable.

Oliver Chen: By phone versus in person and what's your expectation on timing of having those issues resolved and are they are they surprising you or not really this was in line with how you expected that to go on.

Oliver Chen: On the on the revenue side, Mike what drove what were the main drivers of the upside.

Marla Beck: This was in line with how you expected this to go. And on the revenue side, Mike, what were the main drivers of the upside? And then, on a bigger picture question, you mentioned stabilizing the business. Just when you say stabilizing the business, Marla and Mike, like, what are the key steps in terms of your thoughts on the overall stabilization plan? Thank you.

Oliver Chen: And then a bigger picture question, you mentioned stabilizing the business just when you say stabilizing the business.

Marla Beck: Marlin, Mike like what are the key steps in terms of.

Marla Beck: Your thoughts on the overall stabilization plan. Thank you.

Marla Beck: I will start. On Sendai, we continue to make progress. The core issues we had with earlier versions have been addressed. Recent issues are related to noise, inconsistent flow, and cosmetic issues. And to address this, we have a full customer and technical service team who work quickly to diagnose and potentially solve the issues over the phone. Most are resolved over the phone. And if it's not resolved over the phone, we send a member of our field service team to visit the provider in person to resolve the issue.

Speaker Change: I will start on.

Marla Beck: On Sunday, we continue to make progress.

Marla Beck: Core issues, we had with earlier versions has been addressed recent issues are related to noise inconsistent flow and cosmetic issues and to address this we have a full customer and technical service team, who worked quickly to diagnose and potentially solve the issues over the phone most.

Marla Beck: <unk> are resolved over the phone and if it's not resolved over the phone we send a member of our field service team to visit that provider and person to resolve the issue.

Speaker Change: So and then regarding the future.

Marla Beck: And then regarding the future, we have recently brought in a seasoned operations leader who has decades of experience to really look at our global production and bring our processes up to the I pass it to you for the remaining questions, Oliver.

Marla Beck: Have recently brought in a seasoned operations leader, who has decades of experience too to really look at our global production and bring our processes up to the level. We expect we'll report on that in the next couple of quarters. She she just joined our team like I'm in it.

Oliver Chen: Passed to you for that.

Oliver Chen: Remaining questions Oliver hat.

Michael Monahan: Sure, so the second question you asked, Oliver, was about revenue, the main drivers of it. In the first quarter, consumables were really a bright spot for us. We had nearly 12% growth in consumables on a consolidated basis, and we were able to deliver that across the regions. As we look throughout the rest of the year in terms of the guidance we provided, we further expect to continue to see that trend in terms of driving overall consumable sales.

Marla Beck: Sure. So the second question you ask Oliver was around revenue the main drivers of it in the in the first quarter consumables was really a bright spot for US we had.

Michael Monahan: Nearly 12% growth on consumables on a consolidated basis, and we were able to deliver that across the regions.

Michael Monahan: As we look throughout the rest of the year in terms of the guidance. We provided we further expect to continue to see that trend in terms of driving overall consumable sales and.

Michael Monahan: We also expect to see improvement in new capital equipment sales, specifically in the Americas, as we get further along throughout the year. And those two factors, you know, your third question around stabilizing the business, you know, that along with really focusing on gross margin is where we're spending the majority of our time. Alright, our next question comes from the line of Ashley Helgens from Jefferies. Please go ahead.

Michael Monahan: And we also expect to see improvement in new capital equipment sales specifically in the Americas.

Michael Monahan: As we get further along throughout the year.

Michael Monahan: And those two factors your third question around stabilizing the business.

Michael Monahan: That along with.

Michael Monahan: Really focusing on gross margin is where we're spending the majority of our time.

Operator: All right, our next question comes from the line of Ashley Helgens from Jeffries. Please go ahead. Hi, this is Sydney on behalf of

Ashley Helgens: Alright. Our next question comes from the line of Ashley Hogan from Jefferies. Please go ahead.

Operator: Yeah.

Sydney: Hi, This is sidney on for Ash can.

Sydney: Can you share a bit more about the health perception from providers and where that stands. It sounds like you guys have done a lot of work there, but just wondering what feedback you're hearing where you feel like you are kind of in that recovery at those relationships. Thank you.

Marla Beck: Yes, I have been touring providers with our teams and talking with our teams every week. The provider is more confident than they've been in Sendai about the progress that we're making. We even see that with our corporate accounts as they're continuing to invest in driving hydrafacial as a gateway treatment for their other aesthetic services. So the confidence is significantly higher than before.

Operator: Yes, I have been trained providers with our teams and talking with our teams every week the provider is more confident than they've been in some detail and the progress that we're making.

Marla Beck: We even see that with our corporate accounts as they are continuing to invest in driving hydro facial as a gateway treatment for their other aesthetic services. So the confidence is significantly up from before.

Operator: All right, our next question comes from the line of Alan Gong from J.P. Morgan. Please go ahead.

Marla Beck: Alright. Our next question comes from the line of Allen Gong from Jpmorgan. Please go ahead.

Alan Gong: Thanks. I'll just ask kind of both of my questions up front. You mentioned tightening credit as being a challenge to capital but also said that you expect that to get better, you know, over the course of the year. Are you, you know, we're only a month or so into the quarter, but are you starting to see any improvements on that so far in May? And then when I think about, you know, your guide to the 96 to 102 million for the second quarter, and then I think about your full year target for flat to up those single digits, that does, you know, put quite a bit of yourself into the back half of the year. And, you know, given some uncertainties around the trajectory of, you know, the macro environment and your ongoing kind of remediation, what gives you confidence that you can hit

Operator: Thanks.

Alan Gong: I'll just ask both my questions upfront, you mentioned tightening credit as being a challenge to capital, but also said that you expect that to get better over the course of the year are you.

Alan Gong: Really a month or so into the quarter, but are you starting to see any improvements on that so far in may.

Alan Gong: And then when I think about your guide at <unk> $96 million to $102 million for second quarter, and then I think about your full year target for flat to up low single digits that does.

Alan Gong: Put quite a bit of your sales into the back half of the year and you know given some uncertainties around the trajectory of the macro environment and your ongoing kind of remediation. What gives you confidence that you can hit that number.

Alan Gong: Yeah.

Michael Monahan: Sure. This is Mike.

Alan Gong: Sure. This is Mike I'll take both those questions. So on the on the tightening of the credit.

Michael Monahan: I'll take both those questions. So, in light of the tightening of credit, we're actively looking for different financing alternatives for our providers to make sure they have access to capital. So, we're not seeing significant changes in May. However, we are working with them to make sure that we can support them going forward, and we expect to make some progress on that throughout the year. On the second question about guidance and revenue cadence, on a percentage basis, we expect Q4 to be a higher percentage of this year's revenue than in the last couple of years.

Mike: We're actively looking for different financing alternatives for our providers to make sure. They have access to capital. So we're not seeing significant changes in may. However, we are working with them to make sure that we can support them going forward and we expect to make some progress on that throughout the year on the second.

Michael Monahan: Question on the guidance and the revenue cadence you know on a percentage basis, we expect Q4 to be a higher percentage of this year's revenue than the last couple of years the launch of <unk> in the U S. In 2022 and internationally in 2023, along with some of the device challenges, we had last year impacted the normal cadence of <unk>.

Michael Monahan: The launch of Sundeo in the U.S. in 2022 and internationally in 2023, along with some of the device challenges we had last year, impacted the normal cadence of revenue in the business. Historically, it has been very strong in the fourth quarter. That tends to be the largest quarter for this business prior to the last couple of years. And so, we've modeled our guidance according to that, as we think that from a revenue cadence, we'll start to return back to a more normal basis than we have in 2022 and 2023.

Michael Monahan: And the business if you look at it historically historically it has been very strong in the fourth quarter that tends to be the largest quarter.

Michael Monahan: For this business prior to the last couple of years and so we've modeled in our guidance. According to that as we think that from a from a revenue cadence will start to return back to the <unk>.

Michael Monahan: A more normal.

Michael Monahan: Basis than we have in 2022 and 2023.

Operator: All right, our next question comes from the line of Susan Anderson from Conocord Genuity. Please go ahead.

Michael Monahan: All right. Our next question comes from the line of Susan Anderson from Canaccord Genuity. Please go ahead.

Susan Anderson: Hi, good evening. Thanks for taking my question. On the system cells, I was curious, you know, how much of the weakness you thought maybe was caused by the higher interest rates versus just a general pullback and general spending at med spas versus just, you know, concerns around the SynthBio issues and maybe just holding off. And then also, I was curious if you had any thoughts on whether providers were holding off from purchasing until, you know, the issues were fixed or if they were going to Thanks.

Susan Anderson: Hi, good evening, Thanks for taking my question.

Susan Anderson: On the system cells I was curious.

Susan Anderson: How much of the weakness you thought maybe was caused by the higher interest rates versus just a general pullback and I mean from general pullback in spending at med spas versus just concerns around this.

Susan Anderson: Issues and maybe just holding off and then also I was curious if you had any thoughts on if providers, we're holding off from purchasing them until you know the issues were fixed or are they going to another competitor or something like that thanks.

Susan Anderson: Okay.

Michael Monahan: I think it's a combination of both. We're seeing the higher interest rates are definitely having an overall impact on having our providers pause some of them, and it's taking a little bit longer between the leads we generate and being able to close. I think the combination of that; we really don't know the specifics between interest rates and some of the equipment challenges we've had in the past. But one thing I will say is we're starting to see that lessen.

Speaker Change: I think it's a combination of both we're seeing the higher interest rates are definitely having an overall impact on.

Michael Monahan: Having our providers pause.

Michael Monahan: Some of them and it's taking a little bit longer between.

Michael Monahan: The leads we generate and being able to close.

Michael Monahan: I think the combination of that we really don't know the specifics between interest rates and in some of the equipment challenges we've had in the past.

Michael Monahan: But one thing I will say is we're starting to to see that lesson. We don't really believe that we have seen a significant impact on kind of competitors. We think the opportunity is very strong and that's as you look at our guidance for the rest of the year.

Michael Monahan: We don't really believe that we've seen a significant impact on competitors. We think the opportunity is very strong. And that, as you look at our guidance for the rest of the year, and when we look at our pipeline, we're really encouraged about what we believe we can deliver in the near term.

Michael Monahan: When we look at our pipeline, we're really encouraged about what we believe we can deliver kind of over the near term.

Operator: All right. Our next question comes from the line of Olivia Tong from Raymond James. Please go ahead.

Speaker Change: All right. Our next question comes from the line of.

Operator: Olivia Tong from Raymond James Please go ahead.

Operator: Okay.

Olivia Tong Cheang: Thanks, good afternoon. I wanted to dig into the Q2 guide a little bit more. You mentioned the International Sundao launch creating a tougher Q2 comp. Can you tell us how much of a contribution that was last year? And then you talked a little bit about your usual seasonality. This is a smaller sequential lift when we look at Q2 versus Q1, and implies that Q2 sales are lower on a two-year stack, whereas they did improve in Q1.

Olivia Tong Cheang: Thanks, Good afternoon, I wanted to dig into the Q2 guide a little bit more you mentioned, the internationalist and Dale launch, creating a tougher Q2 comp can you tell us how much of a contribution that was last year.

Olivia Tong Cheang: And then you talked a little bit about your usual seasonality.

Olivia Tong Cheang: This is a smaller sequential lift when we look at Q2 versus Q1.

Olivia Tong Cheang: And implies that Q2 sales or are lower even on a two year stack, whereas it did improve in Q1. So could you just talk a little bit more peel back the layers of the onion on what's embedded in your expectations.

Olivia Tong Cheang: So could you just talk a little bit more, peel back the layers of the onion on what's embedded in your expectations, perhaps any of the takeaways that you've had from the trade show here today that helped influence that Q2 view? Thank you.

Olivia Tong Cheang: Perhaps any takeaways that you've had from the trade shows year to date that helped to influence that.

Olivia Tong Cheang: That Q2 view thank you.

Michael Monahan: Sure. So last year, our total revenue was $117 million on a consolidated basis in the second quarter. We had a really strong quarter in APAC and EMEA. APAC overall equipment revenue grew substantially because of the launch, and so did EMEA, which largely had an impact on the second quarter.

Speaker Change: Sure. So last year, our total revenue was $117 million on a consolidated basis.

Michael Monahan: In the second quarter, we had really strong a really strong quarter in APAC and EMEA.

Michael Monahan: Grew APAC overall equipment revenue grew substantially because of the launch and so did EMEA, which was which was largely impacted largely had an impact on the second quarter. When you look at [noise].

Michael Monahan: This year in terms of the guide, we're obviously comping that.

Michael Monahan: When you look at this year in terms of the guide, we're obviously comping that internationally. In the Americas, what's putting a little bit of pressure is really on the capital equipment side. Again, the two things that we're seeing are that it takes a little bit longer to close that sales pipeline. So the way we modeled it was in our expectation that we'll be able to close the pipeline a little bit later in the year and we'll still see a little bit of softness in the second quarter. So we modeled capital equipment sales to be down year over year in the Americas, and that's overall impacting the general guide.

Michael Monahan: In internationally in the Americas, what's putting a little bit of pressure is really on the capital equipment side again, the two things that we're seeing or take a little bit longer to close that sales pipeline. So the way we modeled it in was in the our expectations are that we'll be able to close the pipeline a little bit later in the year.

Michael Monahan: And we will still see a little bit of softness in the second quarter. So we model capital equipment sales to be down year over year in the Americas and that's that's overall impacting the general guide.

Operator: All right, our next question comes from the line of Margaret Coxor from William Blair. Please go ahead.

William Blair: Alright. Our next question comes from the line of market customer from William Blair. Please go ahead.

Operator: Hi, everyone. This is McCaulay on behalf of Margaret.

Margaret Coxor: Hi, everyone. This is my color on for Margaret Thanks for taking our questions.

McCaulay: So last quarter, you mentioned, some ordering disruptions, especially associated with some of those international distributors. So I'm just wondering if we can get an update on how those ordering patterns have.

McCaulay: Have normalized if they have normalized.

McCaulay: Typically APAC as you called out.

McCaulay: And did you see any change in the quarter.

Michael Monahan: Thanks for taking our questions. So last quarter, you mentioned some ordering disruptions, especially associated with some of those international distributors. I'm just wondering if we can get an update on how those ordering patterns have normalized, if they have normalized, specifically APAC, as you called out. And did you see any change in the quarter? Or was there any catch-up maybe this quarter compared to the last quarters, just as some of those Sundeo improvements were made over the course of the year?

McCaulay: Or was there any catch up maybe this quarter compared to the last quarters, just as some of those scenario improvements were made over.

Speaker Change: But of course.

Michael Monahan: Yeah.

Michael Monahan: I think a large portion of the timing that we saw was on the distributor side of the business and for consumables in Q4, specifically in APAC. We're starting to see that normalize in the first quarter. So there wasn't anything significant that impacted the first quarter in terms of overall timing.

Michael Monahan: Take a large portion.

Michael Monahan: I think a large portion of the timing that we saw was in the on the distributor side of the business and for consumables in Q4, specifically in APAC, we're starting to see that normalize.

Michael Monahan: In the first quarter. So there wasn't anything significant that impacted kind of the first quarter in terms of overall timing.

Operator: Our next question comes from the line of John Block from Stifle. Please go ahead.

Michael Monahan: Our next question comes from the line of Jon Block from Stifel. Please go ahead.

Operator: Hey guys, this is Joe Federico on for John. Um, Mike, I guess to start, um, maybe just following up on one of the previous questions about, kind of the back half of the year that was sales, but I'll try it from an EBITDA perspective. The 2Q guidance implies that the first half EBITDA margin is around 3%. Full year guidance implies, you know. That basically, the second half shakes out around 16%.

Operator: Hey, guys. This is Joe Federico on for John.

Operator: Mike I guess to start maybe just following up on one of the previous questions on kind of the back half of the year that was on sales, but I'll try it from an EBITDA perspective.

Operator: The <unk> guidance implies that the first half EBITDA margin is around 3%.

Operator: Full year guidance implies you know.

Operator: That basically the second half shakes out around 16% can you give us any more color on kind of the ramp there on.

Operator: Can you give us any more color on kind of the ramp there on the EBITDA margin? I, you know, it sounds like a lot for accelerating consumable sales. So any detail on, you know, some of the other moving parts would be helpful. Thanks.

Operator: On the EBITDA margin.

Operator: It sounds like a lot for accelerating consumable sales so any detail on some of the other moving parts would be helpful. Thanks.

Michael Monahan: A lot of the expectation is that as we grow revenue, we'll be able to manage the OPEX, and you saw we were able to do that in Q1. We're actively managing our operating expenses, and we expect to continue to do that and potentially improve it throughout the year. And so what's really driving the EBITDA, as you grow revenues and hold or potentially slightly improve a little bit on the gross margin as we're able to manage the operating costs?

Operator: A lot of the expectation is as we grow revenue, we will be able to.

Michael Monahan: Manage the Opex and.

Michael Monahan: And you saw we were able to do that in Q1 were actively managing our operating expenses and expect to continue to do that and potentially improve throughout the year and so what what's really driving the EBITDA. If you as you grow revenues and hold or potentially slightly improve a little bit on the gross margin as we are able to manage.

Michael Monahan: The operating expenses Youll see that our expectation is that drops down to adjusted EBITDA.

Operator: All right, and just as a reminder, if you would like to ask a question, please press star 1 on your phone now. Our next question comes from the line of Korinne Wolfmeyer from Piper Sandler. Please go ahead.

Michael Monahan: Alright, and just as a reminder, if you would like to ask a question. Please press star one on your phone now.

Korinne N. Wolfmeyer: Our next question comes from the line of <unk> <unk> from Piper Sandler. Please go ahead.

Michael Monahan: Hey, good afternoon. Thanks for taking the time to ask the question. I'd like to ask about utilization. I know you had some positive commentary on consumables, but it does look like overall utilization was a bit weaker. We're also hearing from some other peers that there might be some weaker end consumer demand and aesthetics. And then you also, it looks like marketing spend is coming down. So what gives you confidence in the consumables being able to accelerate throughout the remainder of the year with all of these pressures?

Korinne N. Wolfmeyer: Hey, good afternoon. Thanks for taking the question I'd like to ask on the utilization I know you had some positive commentary on consumables, but it does look like overall utilization was weaker we're also hearing about from and it appears that there was some might be some weaker and consumer demand and aesthetics and then euro.

Michael Monahan: Also it looks like the marketing spend is coming down so what gives you confidence in the consumables being able to accelerate throughout the remainder of the year with all of these pressures.

Michael Monahan: Thank you for the question. So, consumables grew nearly 12% in the first quarter year-over-year, and our installed base has grown significantly. Brightspot is really our corporate account. They're expanding and focusing on marketing hydrafacial, which is adding to our utilization. Additionally, we see a pretty long-term opportunity as we expand our innovation pipeline for, you know, 25 and 26. The other thing is that we do need to and will invest in additional support training and marketing activations to support our providers.

Speaker Change: Thank you for the question. So consumables grew nearly 12% in the first quarter year over year and our installed base has significantly grown.

Michael Monahan: Bright spot is really our corporate accounts, they're expanding and focusing on marketing our hydro facial which is adding to our utilization. Additionally, we see a pretty long term opportunity as we expand our innovation pipeline for for.

Michael Monahan: 25, and 26. The other thing is we do need to and will invest in additional support training and marketing activity Activations to support our providers. We think we can be highly efficient and doing this.

Michael Monahan: We think we can be highly efficient in doing this, and we have the opportunity to focus on certain providers to support them in driving utilization. So, as we dig into the back half of the year, we'll be investing deeply and really supporting our providers from a resource allocation perspective and a time and attention perspective.

Michael Monahan: We have the opportunity to focus on certain providers to support them and driving utilization. So as we dig into the back half of the year and we'll be investing deeply and really supporting our providers from a resource allocation perspective.

Michael Monahan: And the time and attention perspective.

Marla Beck: Alright, those are all of our questions in the queue. I would now like to turn the call back over to Marla Beck for closing remarks.

Michael Monahan: Alright, those are all of our questions in the queue I would now like to turn the call back over to Martin Rebecca for closing remarks.

Operator: Thank you all for joining us today. Our progress is being driven by our passionate team and community. I want to thank the employees of Beauty Health for their continued hard work and dedication, providers for their loyalty, and partners for their trust and collaboration. I am incredibly confident and excited about the future of Beauty Health given our significant addressable market, compelling brand equity, deep provider partnerships, and presence of the right team to execute and drive our success. Thank you.

Marla Beck: Thank you all for joining us today, our progress is being driven by our passionate team and community I want to thank the employees of beauty health for their continued hard work and dedication.

Operator: Our providers for their loyalty and our partners for their trust and collaboration I'm incredibly confident and excited about the future of beauty health, given our significant addressable market compelling brand equity deep provider partnerships and presence of the right team to execute and drive our success.

Operator: Yeah.

Operator: This concludes today's call. Thank you for attending. The host has ended this call. Goodbye.

Speaker Change: This concludes today's call. Thank you for attending.

Operator: The host has ended this call goodbye.