Q3 2024 AirSculpt Technologies Inc Earnings Call
Speaker Change: Greetings and welcome to AirSculpt Technologies Inc. 3rd Quarter 2024 Earnings Conference Call.
At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Alison Malkin from ICR. Thank you, Ms. Malkin.
Speaker Change: Good morning, everyone, and thank you for joining us to discuss AirScope Technologies results for the third quarter of fiscal 2024.
Speaker Change: Joining me on the call today is Interim Chief Executive Officer and Chief Financial Officer Dennis Dean.
Speaker Change: Risk 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 release and the reports we will file with the SEC.
Speaker Change: 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.
Speaker Change: A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10Q, which will also be available on our website.
Speaker Change: For today's call, Dennis will begin with an overview of the quarter and share an update on our strategic initiatives, followed by a review of our financials and guidance.
Speaker Change: Following our prepared remarks, we will open the call to take the questions you have for us today. With that, I'll turn the call over to Dennis.
Dennis Dean: Good morning, everyone, and thank you for joining today's call. Our third quarter results were in line with our expectations and included solid progress on our back-to-basics priorities.
These priorities focus on three initiatives.
Dennis Dean: Improving the conversion of current and prior lead volumes into perform cases. Ensuring our recent de novo center openings are successful and bettering cost management.
Briefly highlighting our financials.
Dennis Dean: Revenue totaled $42.5 million in the third quarter, down 9.1% year-over-year, with case volume down 4.3% from the prior year third quarter.
Dennis Dean: Same store cases declined 8.1% over the prior year, but improved significantly from the decline of 14% reported in the second quarter of this year.
Dennis Dean: Adjusted EBITDA was $4.7 million or 11% of revenue versus $9.1 million or 19.4% of revenue in the prior year quarter. The decline in revenue accounted for $3 million of the decrease, with the remainder mostly due to the costs related to new de novo openings.
Dennis Dean: As a reminder, it takes approximately three to four months for new centers to reach profitability. And let me now turn to the progress made in our back-to-basics priorities.
Dennis Dean: As it relates to converting demand for AirSculpt to cases, in our lowest seasonal quarter of the year, and while our core customers are still facing macro challenges, we are starting to see measured improvement in converting leads to consultations.
Dennis Dean: As you're aware, AirSculpt is a considered purchase with an average spend between $12,000 and $13,000.
Dennis Dean: In this environment, it is common to see a longer time frame just to convert leads into cases. Historically, our experience shows that it takes approximately 45 days to convert a lead to a case. For the third quarter, it was closer to 60 days.
Dennis Dean: In response, we have implemented a number of initiatives to drive leads and conversions to cases, and let me share some examples.
Dennis Dean: We are now utilizing Salesforce software to help us reconnect with customer leads in our database and better nurture and communicate with them to offer a more catered experience which should help increase conversion to cases over time.
Dennis Dean: Importantly, as these established leads convert to cases, they do so at no additional cost, which will in turn help lower our customer acquisition cost.
Dennis Dean: We have also added new payment options that give consumers more flexibility to finance procedures. We believe this is an effective way to drive incremental revenue by allowing eligible consumers to schedule higher price procedures, which should also help us improve our margins.
Dennis Dean: Our second priority is to drive productivity from our recent de novo locations.
Dennis Dean: We continue to be pleased with the performance of our 2023 DeNovo Center class.
Dennis Dean: Each of the U.S. centers that have been open for 12 months are performing ahead of our
Dennis Dean: Similarly, these centers are also achieving a payback of less than one year. We believe the excellent performance of these centers is the result of our more seasoned recruiting, sales, and operation teams, which should also benefit our recent new center openings as well.
Dennis Dean: As it relates to new locations, it was a busy quarter. We opened centers in Kansas City, Kansas, Columbus, Ohio, Deerfield, Illinois, and Birmingham, Michigan. And while early, so far we are pleased with our new cohort performance.
Dennis Dean: Our fifth and final opening for 2024 is expected to open in White Plains, New York in the next few weeks.
Dennis Dean: As of September 30th, 2024, we operated 31 facilities versus 27 at the end of the third quarter of 2023.
Dennis Dean: Looking ahead, we have a strong pipeline of new centers. Overall, we continue to believe we have significant opportunity to operate over a hundred centers in the medium term and have three locations currently identified for 2025 and expect to increase that number in the next few months.
Dennis Dean: Turning to our third priority, the quarter also saw continued progress on our cost savings goal as we have identified and achieved half of our plan $1 million savings goal for the back half of the year.
Dennis Dean: And on an annualized basis, we expect to deliver savings of $2 million, and we will continue to prudently invest savings into higher return marketing activities as we work to increase leads and case growth.
Speaker Change: Let me now share additional insights into our financial performance and guidance.
Speaker Change: As mentioned, revenue for the quarter was $42.5 million, a 9.1% decline versus the prior year quarter, with same store revenue down 13%. The decline in revenue this quarter was mainly driven by lower case and lead volume due to the challenging consumer spending environment.
Speaker Change: In addition, while our average revenue per case this quarter was $12,984,
Speaker Change: and on the high side of our $12,000 to $13,000 range.
Speaker Change: It compares to $13,658 in last year's third quarter, which was unusually high driven by patients having more areas treated than any other quarter.
Speaker Change: Notably, while leads are lower, our ability to convert leads to consultations showed some improvement which we attribute to our return to a more efficient marketing spin.
Speaker Change: The percentage of patients using financing to pay for procedures was 53%, which is consistent with recent quarters. As a reminder, we receive full payment of all procedures up front, and we have no recourse related to patients who finance their procedures with third-party vendors.
Speaker Change: Cost of service as a percentage of revenue was 41.8% versus 38.8% over the prior year period. Our recent de novo openings reflected a 130 basis point impact, while the remaining percentage increase was due to our inability to flex certain fixed costs such as rent and nursing.
Speaker Change: However, this was offset by year-over-year increase in our marketing spin.
Speaker Change: Our customer acquisition cost for the quarter was $2,900 per case, as compared to $2,750 in the prior year.
Speaker Change: On a sequential basis, we decreased our advertising spend by $4.1 million as a result of discontinuing certain brand awareness spending initiatives.
Speaker Change: Notably, our efforts to reduce CAC are working as reflected in the sequential decrease in our CAC of $425 versus the second quarter of 2024.
Speaker Change: As our marketing and sales efforts begin to convert to cases, we expect to see further reduction in our customer acquisition costs going forward and continue to move toward our CAC goal of approximately $2,000.
Speaker Change: Turning to our balance sheet, as of September 30th, 2024, cash was $6 million, and we had $5 million available on our revolving credit facility. Our gross debt outstanding is $71.3 million, and our leverage ratio is 2.2 times.
Speaker Change: Cash flow from operations for the quarter was $1.8 million, compared to $0.6 million in the prior year quarter, and we invested $4.9 million this quarter in DeNovo facilities.
Speaker Change: Let me now turn to our outlook for the remainder of the year.
Speaker Change: As noted in our preliminary sales release issued on October 24th, we have increased the midpoint of our revenue guidance for 2024 to a range of $183 million to $189 million
Speaker Change: For the past three and a half years, Philip has served as Senior Vice President and Corporate Controller at AirSculpt, where he has been a highly valuable and trusted partner of mine.
Speaker Change: Prior to joining AirSculpt, Phillip held senior finance roles with significant experiences in the healthcare industry.
Speaker Change: I'm looking forward to continuing to benefit from his business acumen as we work to improve our financial foundation. Additionally, the search for a permanent COO is well under way. We have conducted several interviews and are narrowing our list of candidates in hopes of announcing a new leader of Aerosculpt in the coming weeks.
Speaker Change: And finally, despite the challenged consumer spending backdrop, we believe our back-to-basics approach to the business is working and will enable us to continue to improve our revenue and profitability trend.
Speaker Change: and a cash generative model that will allow us to navigate this dynamic period and continue to invest to support our future growth. With that, I'd like to turn the call over to the operator for some questions. Operator?
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment please while we poll for questions.
Speaker Change: The first question comes from the line of Joshua Raskin with Nephron Research, LLC. Please go ahead.
Joshua Raskin: Hi, thanks. Good morning. Um, I guess the first one just starting on the new centers, I know you have four in the quarter. It looks like the case count on those four was about 130 cases in the quarter. I know Deerfield and Birmingham were right at the end of the quarter, but I think you said that was sort of in line. How should we think about that ramp and, you know, sort of contributions in the fourth quarter? Are you expecting?
Speaker Change: In the in the quarter for us, Kansas City opened up first full month, I believe was August and Columbus was first full full month of September. So, as you, as you pointed out, it was, it didn't get a full compliment of those activities.
Speaker Change: You know, those centers are, you know, improving well. I mean, I think what you would look at is is, you know, probably looking at
Speaker Change: You know, obviously you could expect a little over doubling that that amount
Speaker Change: You know, as we pointed out, the, the centers that we opened up last year, continue to perform well, when we think about, you know, how a center performs on a full year basis.
Speaker Change: You know, our sort of expectation is a range of around four and a half million dollars of revenue for the full year.
Speaker Change: and, you know, while we don't give out each center individual information, you know, those centers last year performed above that.
Speaker Change: Our current centers that are open are performing very much in line, and so we expect it, you know, it's not a full quarter of that, obviously, from the standpoint of the four and a half million, but we do expect some pretty significant improvement over what we saw in the third quarter.
Speaker Change: Alright, that's helpful. Maybe switching topics, just I'm curious of your views on the impact of GLP-1s in the vault, if you've got any more data on how many patients are using them prior to a procedure seeing you and I don't know if you're seeing any specific changes in demand for skin tightening procedures, things like that.
Speaker Change: Yes, still no significant change from what we've talked about in previous quarters around it. We have seen some some publications recently that that are, you know, strongly suggesting that that the GLP-1
Speaker Change: are leading to people considering body contouring procedures, specifically as it relates to skin tightening. I think that's an area that we need to be leaning into a little bit further and I expect us to do that in the coming year.
Speaker Change: Skin tightening, as you know, I mean, if you've been around anyone that's been on the GLP-1, that's an area that you can tell that that is a needed aspect of it.
Speaker Change: You know, it just, again, the GOP ones have been sort of a catalyst of drawing people to, you know, what can I do with my appearance? And so, obviously the weight loss aspect has been working for a lot of people.
Speaker Change: and we think skin tightening is definitely an area that we focus on. Currently, we do skin tightening. Obviously, we talked about Aerosculpt itself.
Speaker Change: you know, performing really good skin tightening just with the modality itself. We do add on to various Aeroscope procedures.
Speaker Change: Skin Tightening as well, but I think there's further work we can do around that. We've been kicking around several ideas internally and it's a process we want to be diligent about and make sure that when we do roll out new products, new items, new services, that we do those clinically well and obviously we want to make sure that they give the results that people have grown to expect from Aerosculpt.
Speaker Change: Yeah, so that's correct. We still aren't taking on financing risk from that standpoint. It's just not an area that we want to do right now. What it is, Josh, is we're looking at opportunities for customers that qualify to
Speaker Change: and obviously we want to do it based on on procedures that are probably a little larger in nature from a from a revenue standpoint.
Speaker Change: and we're working with vendors or financing vendors to kind of open up opportunities again for the right Qualified candidates to extend that to say 24 months 18 to 24 months
Speaker Change: Unknown Attendee, Dennis Dean, Todd Magazine, Dennis Dean, Todd Magazine, Dennis Dean, Todd
Speaker Change: volume, particularly as it relates to the challenges that consumers are facing currently.
Perfect. Thanks a lot.
Speaker Change: Thank you. A reminder to all the participants that you may press star and 1 to ask a question.
Speaker Change: Next question comes from the line of Corinne Wolfmayer, Piper Sandler. Please go ahead.
Speaker Change: Hey, good morning. Thanks for taking the question. I'd like to touch a little bit on the cost of service this quarter. It was at the percent of sales. It did step up a little bit. Could you provide a little bit of color on what the driver here was? Was it just a function of lower volumes or anything else going on? And then how to think about the proper run rate of that as we head into Q4 and then even the early parts of 2025. Thanks.
Joshua Raskin: Hey, thanks, Grant. And yeah, as you pointed out, the cost of service did tick up in the quarter.
Which is
Speaker Change: Typical for us in the third quarter, as I remind you guys, the third quarter is our most challenging quarter of the year from a revenue standpoint, even when there's not a consumer macro challenge out there, so we always tend to see a little bit of an uptick in the third quarter as it relates to just the decline in the revenue from that standpoint.
Speaker Change: One of the major drivers, Corinne, was opening up four new centers in the quarter. Not only do we have pre-opening related costs in there, but we also have, as you guys probably recall,
Speaker Change: about 130 basis points was was related to just the de novo activity. So expect that part to be able to, you know, begin to come down as those centers begin to ramp up further in the in the fourth quarter. So
Speaker Change: But again, I think going back to that, you know, where we have historically been is where we ought to land. And again, as those DeNovos ramp up, we'll see some significant improvement there.
Speaker Change: Great, that's helpful. And then moving through the P&L, the SG&A steps down a good amount and I know there's some cost savings going on, but it sounds like you're still prioritizing marketing and, you know, customer spend. So any color on the building blocks around SG&A and then how we should be thinking about that heading into Q4. Thanks.
Thanks for watching!
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Speaker Change: That's that is our number one area of focus trying to reach the right optimal level of marketing spend I mean
Speaker Change: on a cost per lead standpoint, doing marketing search activities is definitely more expensive to us. But it also provides a much quicker turnaround because those patients have a lot more intent.
Speaker Change: We're just trying to strike the right balance there between, you know, making sure that we're getting the right return on what we're spending there. But, you know, we may see a little bit of an uptick in the fourth quarter in our marketing expand, but nowhere, you know, close to where we were in the in the second quarter. But again, it's
Speaker Change: Striking the right balance is something that we're very focused on.
Speaker Change: We did do some things around corporate overhead that gave us about a half a million dollar benefit in the in the current quarter We expect that to continue on most of those were
Speaker Change: you know, sacrifice, you know, quality and safety and those sorts of things.
All right, thanks so much.
Speaker Change: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Dennis Dean for closing comments.
Dennis Dean: Thank you again for joining us today and we look forward to speaking with you when we report fourth quarter results and we're going to see many of you, I believe, in the upcoming days and weeks related to some investor events. Thank you very much.
Speaker Change: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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