Q3 2024 The Beauty Health Co Earnings Call
Speaker Change: Good day and welcome to the Beauty Health 2024 3rd Quarter Earnings Conference Call.
All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
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Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Norberto Aja of Investor Relations. Please go ahead.
Norberto Aja: Thank you, Operator, and good afternoon, everyone. Thanks for joining the Beauty Health Company's conference call to discuss our third quarter 2024 financial results.
Norberto Aja: which were released earlier this afternoon and which can be found on our corporate website at beautyhealth.com
Norberto Aja: Joining me on the call today is Beauty House Chief Executive Officer Marla Beck and her Chief Financial Officer Mike Monahan.
Speaker Change: Before we begin, however, I would like to remind everyone of the company's safe harbor language.
Management may make forward-looking statements including guidance and underlying assumptions.
Speaker Change: Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.
Speaker Change: Listeners are cautioned not to place undue reliance on any forward-looking statements.
for a further discussion of risks related to our business.
We see the company's violence with the FCC.
This call will present non-GAAP financial measures.
Speaker Change: A reconciliation of these non-GAAP measures to the most comparable GAAP measure are in the earnings press release furnished to the SEC and available on our website.
Speaker Change: Following management's prepared remarks, we will open the call for a question and answer session.
Speaker Change: 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. Good afternoon and thank you for joining us today to review our third quarter results. In my short time as CEO, we've identified and made significant progress addressing the most critical issues facing the company. I believe we are in a much stronger position today.
Marla Beck: Our strategic initiatives have begun to take hold and are starting to flow through to our financial results.
Marla Beck: Third quarter revenue came in above the midpoint of our guidance. We lowered our operating expenses versus the prior year and delivered profitable, adjusted EBITDA despite top-line pressures across device sales.
Marla Beck: Strong growth in consumables allowed us to make great strides in improving our adjusted growth margin to 69%.
Marla Beck: We've done a great deal of work to set the foundation for Beauty Health's future success. This work includes enhancing and strengthening our sales strategy in the face of near-term macro headwinds.
simplifying our operations and manufacturing footprint.
Marla Beck: Reducing our global cost structure and investing in innovation for future growth.
Marla Beck: This foundation is critical as we drive toward long-term sustainable profitability. The current macro environment is challenging for new device sales due to tightened credit, high interest rates, and economic uncertainty, most notable in the international market.
Marla Beck: Our strategy continues to revolve around the three core areas of focus that I outlined earlier this year.
Sales Execution, Operational Excellence, and Financial Discipline.
Marla Beck: Let me walk you through some of our accomplishments and my thoughts on the opportunities we have in front of us.
Marla Beck: Starting with sales execution, we've made significant strides in strengthening our commercial leadership team with the recent appointments of a new Chief Revenue Officer and Chief Marketing Officer, both of whom have deep experience in medical aesthetics.
Marla Beck: They are leading a comprehensive review of our commercial activities to drive revenue and position us to capture the large addressable global market for hydrafacial.
Marla Beck: As a first step, we recently completed a project to restructure our sales strategy in the U.S., our largest market.
Marla Beck: The project focused on improving processes, tools, and technology to drive better results in the coming year. Key learnings and actions from the initiative include expanding our LEAD pipeline,
Marla Beck: Enhancing our sales team's execution to increase field time and provider touch points. And leveraging advanced analytics for more efficient management.
Marla Beck: These improvements are designed to empower our sales teams with the right tools to engage more effectively with providers and streamline decision making. As we implement these changes, we are confident that they will boost our sales performance and drive stronger results moving forward.
Marla Beck: Starting in 2025, we plan to focus our efforts on core markets with the intention of consolidating operations while strategically leveraging partnerships in other regions to maximize shareholder value.
Marla Beck: We will provide an update on these initiatives on our next call as we continue to evaluate the best strategic options in each market to simplify and optimize our global operating model. These actions are designed to ensure that our commercial efforts are aligned, efficient, and focused on delivering long-term value.
Moving to Operational Excellence.
Marla Beck: Sundeo performance has stabilized, particularly with the devices produced in our Long Beach facility. While some challenges persist in the field, the technical return rate remains low and continues to decline.
Marla Beck: The majority of service calls can be addressed easily and are often resolved over the phone thanks to the expertise of our technical support team.
Marla Beck: During the quarter we made the strategic decision to realign our global manufacturing footprint.
Marla Beck: We will consolidate our manufacturing operations in our U.S. facility by year-end and conclude our relationship with our Chinese manufacturing partner.
Marla Beck: This is a key step in simplifying our operations and aligning our business with the most scalable growth opportunities.
Marla Beck: It will also allow us to focus more closely on quality oversight and ensures consistency of product production.
Marla Beck: As a result of these efforts and the improvement in sales mix, we've achieved an adjusted gross margin in the upper 60s as we continue to focus on gross margin improvement programs for manufacturing to drive further efficiency and cost effectiveness in our operations.
Marla Beck: We've also taken a more strategic approach to how we leverage our equipment portfolio. As we previously mentioned, in the U.S. we have opened up the portfolio and implemented a good, better, best tiered pricing strategy for our equipment sales.
Marla Beck: This is already allowing us to increase the adoption of our entry and mid-level offerings, Elite and Allegro, and addressing the entire spectrum of providers more effectively.
Marla Beck: Many of these providers are finding the lower price point compelling, allowing them to offer the hydrafacial experience and enjoy the powerful increase it has on foot traffic and to their business as a whole, while making an investment that they can more easily self-fund or find financing for.
Marla Beck: In addition, by focusing on more diverse price points, we've addressed many of the headwinds around higher interest rates and overall lack of financing that an increasing number of our providers have experienced recently.
Marla Beck: In just a short time, we've seen the positive impact of this strategy, with sales being more diversified across all three of our equipment offerings.
Marla Beck: In the third quarter, we saw an increase in non-Sendaio units sold in the Americas, from 33% in Q2 to 38% in Q3. Globally, non-Sendaio sales were 29%.
Marla Beck: With regard to innovation, our strategy is centered around the concept of medtech meets beauty.
Marla Beck: The combination of our patented technology with our clinically effective solution serums and peels Results in healthy glowing skin that cannot be achieved with any other minimally invasive treatment
Marla Beck: We are now refocusing our efforts on bringing innovation to the market. The work we're doing to reduce costs and improve inventory is enhancing our ability to accelerate the product pipeline and leverage our over 120 patents.
Marla Beck: To that end, we are excited about the reception by the market to our latest innovation, the Hydrafacial HydraLock HA Booster, the first in our portfolio to be backed by extensive clinical claims.
Marla Beck: The Hydrolock HA booster has quickly become the most successful hydrafacial branded booster launch to date.
setting a new standard for launch excellence.
Marla Beck: As the first booster in our future strategy, it's a clear example of how we're executing with precision backed by deep clinical results and a 360-degree marketing plan that resonates with our provider base.
Marla Beck: The launch was bolstered by well-timed sales training and strong clinical evidence, ensuring maximum impact.
Marla Beck: We sold out in record time for a hydrafacial branded booster, showcasing what our organization can achieve when we work together with cross-functional planning and collaboration.
Marla Beck: In addition, we garnered over 4.3 million influencer impressions. This success proves the power of a coordinated approach and sets the stage for future product innovations.
Marla Beck: Moving forward, clinical data will play a leading role in our approach to innovation.
Marla Beck: Significant leverage can be achieved from the clinical data supporting the positive effects of hydrafacial across a number of skin conditions.
Marla Beck: We are working with leading dermatologists to validate the power of non ablative lasers combined with hydrafacial treatments With clinical data and hope to see this study published soon
Marla Beck: We now have a new commercial team in place focused on determining how to best introduce new products for 2025, including new booster launches.
Marla Beck: We are continuing to evaluate the opportunity for a hydrofacial back bar and a skin care line. New product innovation remains a key piece of our strategy to wrap the treatment room and drive sales and margin expansion.
Marla Beck: In parallel, we're enhancing our digital capabilities and have brought in a new U.S. e-commerce leader who is focused on reducing friction for providers and leveraging technology to streamline their experience.
Marla Beck: And with regards to financial discipline, something that Mike will touch on in greater detail, we continue to see great results from cost discipline and cost management.
Marla Beck: We have made strides in better aligning our costs with the realities of our business and have been able to achieve scale out of the business.
Marla Beck: Operating expenses for the first nine months are down $31.4 million versus the prior year period.
Marla Beck: This was achieved through diligent management of expenses and shifting the corporate culture toward cost consciousness and data-driven decision making.
Marla Beck: It is important to note that our global footprint is a driver of our operating expenses.
Speaker Change: Beauty Health remains a unique company at the intersection of beauty, aesthetics, health, and wellness.
Speaker Change: We are committed to reinforcing our value proposition as a key business and revenue generator for our providers.
Speaker Change: Investment in a hydrafacial device offers the potential for payback in under six months and has proven to drive significant incremental revenue for those who invest in it.
Speaker Change: Long-term market trends are on our side with a growing demand for more natural aesthetics, the rise of weight loss treatments fueling the need for skin rejuvenation, and the increasing popularity of pairing lasers with hydrafacial treatments.
Speaker Change: As a market leader and category creator in minimally invasive skin health treatments, our brand is recognized and requested by consumers worldwide. A great proof point reflecting how this continues to be the case is the interest from national accounts, which has been rising as more providers explore expanding their service offerings with us.
Speaker Change: In closing, we are starting to see our transformation strategy take hold, with the business delivering the results we promised as we make progress against our strategy across our three major focus areas, sales execution, operational excellence, and financial discipline.
Speaker Change: While we are still facing near-term industry headwinds, particularly in the equipment segment, are consumables businesses growing?
Speaker Change: Transformations of this scale take time and we are focused on laying the necessary building blocks to position the company to return to growth once these headwinds subside.
Speaker Change: Looking ahead, our primary focus within our core markets is to build on the momentum we've generated. By continuing to refine our sales and operational approach and staying aligned with our strategic goals, we are confident in our ability to drive sales, margin improvement, and profitability in 2025.
Speaker Change: I will now turn the call over to Mike to discuss our third quarter financial results and revised guidance. Mike?
Mike Monahan: Thanks, Marla. I'm encouraged by the progress we are making to strategically position the company to benefit from the many opportunities in front of us over the mid to long term.
Mike Monahan: Third quarter revenue came in above the midpoint of our guidance, $78.8 million, representing a 19.1% year-over-year decline.
Mike Monahan: To address this, we began to focus on a good, better, best strategy that offers lower device price points to providers, primarily in the U.S. market.
Mike Monahan: As a result, we saw an increase in sales of elite systems during the quarter, with America's non-Sendaio systems totaling 38% of units sold, up 11% from Q3 of last year.
The End
Mike Monahan: Global equipment sales declined 45.9% offset by a 10.4% increase in consumable sales.
Mike Monahan: In the Americas, we sold 634 units compared to 776 units in the third quarter of 2023. We sold 215 units in APAC compared to 752 in Q3 2023, and 269 units in EMEA compared to 612 units in Q3 2023.
Mike Monahan: This brings the total year-to-day units sold to 3,820 systems and the total active machines in the field to 34,162 units versus 30,074 units at the end of Q3 2023.
Mike Monahan: Consumable sales for the quarter totaled $51.2 million, or a 10.4% increase versus Q3 2023.
Mike Monahan: This brings our consumable sales for the first nine months of 2024 to 152.2 million compared to 139.2 million for the first nine months of 2023.
Mike Monahan: Consolidated revenue in the Americas is roughly flat, up 0.3%, while revenue across APAC and EMEA declined by 56.1% and 23.6% respectively.
Mike Monahan: In APAC, China accounted for $5.3 million of the region's revenue, a decline of 68.5% year over year. The decline in China reflects an 84.2% drop in system sales along with a 5.8% decrease in consumables revenue.
Mike Monahan: As a reminder, Sundeo launched in China in Q2 2023, driving increased sales in the prior year.
Mike Monahan: Gross profit for the third quarter was $40.6 million, favorably comparing to a loss of $12.6 million in the prior year period.
Mike Monahan: Adjusted gross margin for the quarter was 69.5%, primarily driven by lower inventory-related charges and product costs, higher average selling prices for equipment net sales.
and a favorable mixed shift towards consumable net sales.
Mike Monahan: Gap gross margin for the quarter was 51.6% improving versus the prior year period as well as sequentially from 45.2% in Q2 of this year.
Mike Monahan: Total operating expenses decreased 10.6% to $62.2 million as we continue to have success in strategically managing our expenses.
Mike Monahan: Selling and marketing expense was down approximately 10.1% to $27.6 million, reflecting lower sales commission, compensation, and lower marketing trade show and event spend.
Mike Monahan: R&D expense was also down 0.7 million, while G&A expense was 33.4 million, down 9.6 percent, with savings primarily driven by lower compensation expense.
Mike Monahan: This led to an operating income loss of $21.5 million versus a loss of $82.1 million in Q3 of 2023.
Mike Monahan: During the third quarter, we made the decision to exit our manufacturing partnership in China, resulting in a one-time charge of $7.6 million, primarily for inventory disposal.
Mike Monahan: Additionally, our partnership with Sephora is ending this year, and as a result, we have taken a charge of $2 million, primarily for the obsolete inventory on hand.
Mike Monahan: Moving to the balance sheet, we ended the quarter with approximately $359 million in cash.
Mike Monahan: Year-to-date, we deployed $156 million of cash to repurchase $192 million of our convertible debt. We feel we have a healthy and robust liquidity position to adequately support the business, including our growth initiatives.
Mike Monahan: This sentiment is further strengthened by the cost reductions we are gaining as we take additional actions to improve the efficiency of the business.
Mike Monahan: Looking at inventory, we ended the quarter with approximately $73.4 million, a decrease compared to $91.3 million in December of 2023.
Mike Monahan: The decrease was primarily driven by lower purchases and excess and obsolescence charges.
Mike Monahan: We are now projecting full year 2024 sales of between $322 million to $332 million and adjusted EBITDA of negative $2 million to positive $4 million.
Mike Monahan: This implies a year-over-year revenue decline in the fourth quarter of approximately 21% at the midpoint of our revenue guidance range, which is consistent with the average year-over-year declines we recorded for Q2 and Q3 combined of this year.
Mike Monahan: Compared to the third quarter, our fourth quarter guidance assumes growth in the Americas, but declines in our international markets, specifically in China.
Mike Monahan: Capital expenditures are expected to be approximately $8 to $10 million for the full year 2024.
Mike Monahan: In closing, we are pleased with the progress we are making as our strategic initiatives gain traction. We are focused on building on our third quarter results to deliver long-term shareholder value by continuing to focus on sales execution, operational effectiveness, and financial discipline.
Mike Monahan: While there's more to be done, we are confident that the actions we have taken lay a strong foundation for profitable growth and Hydrofacial's long-term success.
Speaker Change: I'll now turn the call back to the operator for Q&A.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
The first question comes from Oliver Chen of TD Company.
Allen. Go ahead, please.
Thanks a lot. Hi, Marla. Hi, Michael.
Speaker Change: Very encouraging. Which regions or aspects of consumables were better than you expected?
Speaker Change: and related to that on the guidance, on the pressure, on delivery system sales. I was curious about why that may have been worse than you expected and when that may or may not stabilize. I know we're in a pretty dynamic macro environment. Also,
Speaker Change: Second, as you concluded your relationship with the manufacturing partner, what's next in terms of...
Speaker Change: What you'll do next with a manufacturing partner and what you're looking for and then Marla there's a lot happening, you know between the sales structure and the booster launches and the pipeline and Sundeo just how would you prioritize?
Speaker Change: perhaps the the hardest challenges that you have ahead and or the most needle-moving if there's a way to contextualize the many things happening.
Speaker Change: I'll have Mike take the rest of your questions and then I'll come back to sort of the overall priority list. Thank you.
Mike Monahan: Sure, why don't I start, Oliver, with the manufacturing partnership. We're consolidating our manufacturing in our Long Beach facility in Southern California. And we're doing that because we believe that
Mike Monahan: We can increase overall quality, as well as manufacture more efficiently within one location. So that's the primary driver of that decision, and we'll have that complete by the end of this year.
Mike Monahan: Another part of your question, I think, was around guidance. So let me talk a little bit about that in relation to consumables and devices.
Mike Monahan: So, our year-over-year revenue growth declined in Q2 and Q3 this year on average 21 percent versus the same period in 2023. We're not seeing those trends materially change in the near term, so we carry that forward in our guidance.
Mike Monahan: So when you look at the midpoint of the revenue guidance for Q4, it's down 21% year-over-year.
Mike Monahan: We're seeing favorable growth on consumables, specifically in the Americas and EMEA, where, as Marla mentioned, we saw consumable sales per device increase in Q3, which is encouraging.
Marla Beck: I think I'll turn that back to Marla for the prioritization question. Yeah, so in terms of our priorities, they're really...
Marla Beck: you know, a couple main ones. One is our go-to-market globally.
Marla Beck: enhance our gross margin while also expand our consumables revenue per device. So those are the three priorities and they fall under sales, operations, and costs.
Okay, Marla. And lastly, it sounded like...
Speaker Change: The consumer challenges we've had with Sundeo are more normalized now, but
Speaker Change: What risk factors do you see, are the customer satisfaction rates or where they need to be and service levels are where they need to be or are you still monitoring certain factors in terms of the total experience with Sundeo and customer satisfaction?
Speaker Change: You know, our technical return rate is way down and we're always monitoring sort of the satisfaction of our providers. So, I think we're on the right track. We still have...
Speaker Change: You know, minor issues in the field, but we can deal with most of them on the phone. So we're happy with the progress we're making.
Okay, thank you. Happy holidays, best regards.
Thank you, Oliver.
[inaudible]
The next question comes from Margaret.
and William Blair. Go ahead, please.
Speaker Change: Hi everyone, it's Maxon from Margaret. I was just wondering, you know, with easier comps on capital sales and consumables growing double-digits,
Speaker Change: Is the consumer goals double digit growth sustainable next year? Do you see a return to growth next year? Just curious to hear your thoughts on what your, you know, your confidence for growth is in 2025. Thanks.
I'm going to have Mike take the comp question.
Thank you.
So overall, consumables, let me just clarify the question,
Speaker Change: The question was about easier comps on devices and consumables, I believe, for this quarter. So I wanted to have you address that. Got it.
So, this quarter,
Speaker Change: Overall, consumables did grow, but what we're seeing, and we talked about this a little bit in the script, is we were encouraged by the consumables per device.
Speaker Change: And so that was the main, one of the main things that we're tracking overall, because that demonstrates, points to the overall consumer.
Speaker Change: into the market, which is further driving consumable sales. So, you know, we're very optimistic about continuing to place more devices and therefore being able to grow consumable sales into the future.
Speaker Change: Great and then just a follow-up I know you guys mentioned you provide an update on you know the regional strategy next quarter but with system sales down pretty significantly in China and then you're pulling your manufacturing operations you know I'm trying not to read into that too much but are you guys still committed to China going forward?
Speaker Change: We're evaluating all of our global markets and looking at where we should continue to invest to achieve the growth rates we're looking for and achieve scale and where a strategic partnership or distribution partnership could potentially make sense.
The End
The next question comes from Ashley Helgens of General Motors.
are free. Go ahead, please.
Speaker Change: Thank you for taking our questions. So first maybe we can just, if you could talk a little bit about some of the underlying demand trends for hydrofacials right now that would be helpful. And then just back on the decision to centralize the global manufacturing footprint, was the third party, did they have any, you know, kind of part for some of the, any reason for some of the Sandeo issues? And then what percentage of the manufacturing was in China versus Long Beach before the decision to centralize? Thanks.
Speaker Change: I'll start with the consumer behavior and provider behavior we're seeing and then I'll have Mike take the manufacturing question.
Speaker Change: You know, we're really pleased with our consumables' growth. As Mike mentioned, the U.S. and EMAEA consumables per device are way up, signifying that consumer demand remains healthy and strong.
We are seeing this in the U.S. especially across...
Speaker Change: the medical channel, where med spas, plastic surgeons, and dermatologists are increasing their consumables per device. So we're pleased with sort of where we're headed on this.
Speaker Change: The other area is, you know, the fact that AMEA is also seeing increases shows the strength in the region. So we're happy with the provider behavior and the fact that the consumers continue to have demand for hydrafacial. Mike, do you want to take the manufacturing question?
Mike Monahan: Sure, we entered into the China partnership about a little over a year ago in a meaningful way. So we haven't been there that long. It was always below a third of the overall manufacturing on average, it moved up and down. The last few, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know, I don't know,
Mike Monahan: months and quarters we've really slowed down manufacturing there and so if you look at more recent we've been doing primarily most production in Long Beach so this won't be a significant disruption to our overall operations
Great, thank you so much.
Speaker Change: Our next question comes from Alan Gong of J.P. Morgan. Go ahead, please.
came down.
Speaker Change: because of that mixed shift. So how should we think about gross margin heading forward both for fourth quarter and for 2025, given that the ramping of Long Beach, I imagine, might lead to some additional disruption in the near term.
Thank you, Ellen, for the question. I'm
So,
Speaker Change: Adjusted gross margins projected to improve in the fourth quarter versus last year, Q4, in 2023. But we're expecting it to decline versus the third quarter of 2024.
Speaker Change: primarily due to higher overhead expense as we lower our capital device.
Speaker Change: along with a plan for increased fair market value of elite system sales. So if you'll remember, those were the systems that we purchased as part of the trade-up program during 22 and 23.
Speaker Change: We're beginning to sell through that inventory, which puts a little bit of pressure on our overall gross margin.
Speaker Change: As you think about kind of moving forward, our overall margin profile, we're not in a position to address 2025 specifically today. We'll talk a little bit more about that on our
Speaker Change: Q4 earnings call. But as we looked for overall profit margins, our goal is to drive towards and maximize profitability in 2025.
Speaker Change: Got it. And then I kind of just want to touch on I think it was one of the first questions But just on the updated guide, you know relative to your previous expectations Third quarter came in, you know towards the higher end of the range, but your updated guidance is now towards, you know
let's say the lower half of your previous guidance range.
Speaker Change: So, what changed for, you know, a strong third quarter to translate into a week or full year guide? Was there, you know, improvement you were expecting to see in October, November that hasn't, you know, appeared? Have things gotten worse in specific markets? If you could just walk us through that. Thank you.
Speaker Change: We're specifically seeing pressure in the international markets really around China is coming in lower than we expected and we still continue to see
pressure on overall device sales globally.
Speaker Change: So, when you look at each region, they're just falling a little bit short from where we originally expected them to be.
Speaker Change: And as I said in the previous remarks, when you look quarter over quarter, you traditionally see in this business seasonally kind of a step up from Q3. And we are seeing growth.
Speaker Change: you know overall for overall revenue in the Americas quarter over quarter it's just being it's being offset by the international pressure.
Speaker Change: This question comes from Susan Anderson of Canaccord Genuity. Go ahead, please.
Hi, thanks for taking my question.
Speaker Change: I was kind of curious on the consumables and the launches so far this year and
Speaker Change: Going forward. How are you thinking about just I guess the cadence of launches? Is there a certain number you would like to have it every year and then any color that you could give on? You know when you have launched a new consumable or a Partnership are you seeing an uptick in sales as consumers kind of want to go out and try the new offering and then lastly? I guess you think think there's still opportunity to also offer a skincare product eventually down the road. Thanks
Susan, thank you for the question.
Speaker Change: I believe that innovation is the key in the consumables market, and it really creates a reason for our sales force to visit providers and for consumers to book a hydrofacial treatment, and we're seeing that with the HydroLock launch. I mean, we're still early days in the HydroLock launch. We launched last quarter only in the U.S., and so there's still more to see, but it really is our first booster this year, and it is our first booster backed by clinical studies, so it's really resonating in the medical channel also.
Speaker Change: I think with our new Chief Marketing Officer and Chief Revenue Officer at NC, we're looking at the right cadence of launches for 2025. But new product innovation is a key piece of our go-forward strategy, and we're looking at sort of how...
Speaker Change: whether it makes sense and when to launch a hydrofacial back bar portfolio and a skin care line. And we do have data that 36 percent of the consumers that have a hydrofacial actually
Speaker Change: have experienced using other professional brands with the hydrafacial treatment. And so we see some good white space in the area and just need our new CMO and CRO to really get up and running to map out this strategy.
The
Mike, do you want to address that?
Mike Monahan: We took a charge in Q3 for $7.6 million that we took as an ad back. That's largely for inventory disposal as we get out. So we don't expect future charges to come from this decision outside of Q3.
Mike Monahan: You know, as we consolidate into the Long Beach facility, we're expecting to continue to realize efficiencies being able to produce for the entire globe out of that facility going forward.
Okay, great. Thanks. Good luck the rest of the year.
Thank you, Susan.
The next question comes from Bruce Jackson.
Rickson of the Benchmark Company.
Speaker Change: Hi, good afternoon, and thank you for taking my questions. Just a couple of product questions here. You've already talked about the boosters.
Speaker Change: quite a bit. I was hoping you could tell me a little bit more about the study that you're doing right now with Hydrafacial in combination with laser procedures. Now, what it is that you're hoping to show with that? And then is that something this is a process that you could extend to other dermatology procedures?
Speaker Change: laser, having hydrofacial be the first step in a series of treatments, and so we decided to do a study on it. The study is in process. We should be publishing soon.
Norberto Aja: a key part of our Go Forward strategy, so thank you for asking, Bruce.
Speaker Change: And then just one follow-up, if I may. With the instrument itself, are there any other features that you're contemplating adding to the Sundeo? That's it for me. Thank you.
Speaker Change: Thanks, Bruce. We are looking at our device innovation strategy very closely and have our team working on that, hoping to have more to talk about that in 2025.
Thanks, Bruce.
This question comes from John Boyer.
and the Block of Staple.
Go ahead, please.
Speaker Change: Thanks, guys. Good afternoon. Maybe the first one, Marla, I thought I heard you correct me, the largest customer, I think you said the contract was up at the end of this year.
Speaker Change: Is there a percent of revenue that you can provide that they accounted for? Is there a chance that it's renewed, you know, in the coming months as we think about November, December?
Speaker Change: And then if not, does that mean what? Like they can continue to order consumables, but no new boxes, just how we think about that customer going forward. And then I'll ask a follow-up.
We had a successful nine-year partnership with Sephora.
Speaker Change: a significant customer, so the sales over last year are not significant to our results.
Speaker Change: The partnership with Sephora introduced millions of consumers to hydrofacial through our PERC by Hydrofacial Treatment, so different treatment. And during that time, you know, we expanded our footprint to over 33,000 devices worldwide. So I think the partnership was very valuable to us in terms of branding. But go forward and, you know, in this year, it hasn't been material in terms of revenue.
Go forward from Sephora
Speaker Change: Got it. Okay. Thank you. That was very clear. And then, Mike, just to shift gears, you know, for the 4Q revenues, maybe this builds on an earlier question. I get the logic of sort of carrying forward, you know, the low 20%, 21% decline.
But your cough is just...
Speaker Change: is very different. It's much easier in 4Q than the prior couple quarters. And there's seasonality inherent in the business, right? I mean, you're usually up in 4Q versus 3Q. So is there any color that you can provide on, you know, the exit rate or the growth prospects for 2025? Is there a commitment from the company for growth top line next year? Thanks, guys.
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: Thanks, John. So for 2025, we'll address that on our next call, so we won't make comments on kind of the top line. We are focused on...
Speaker Change: Margin expansion and profitability as we mentioned the script, but we'll get more color on that in kind of February I think I think what what might be helpful is kind of I Can spend a little bit of time talking a little bit more about what we saw in q3 and we're seeing those trends
Speaker Change: come through in Q4, and that's what makes up the guide. So.
Speaker Change: You know in q3 and into the beginning of q4 to get us to today, you know overall new device sales We're down across the globe, you know with consumable growth in the Americas and EMEA as we saw in q3
Speaker Change: And if you look at each market, you know, America's revenue in Q3 was flat year over year. New equipment sales were down double digit, but that was offset by, you know, increased consumable sales, you know, both in total and per device.
Speaker Change: trends, you know, we continue to see kind of entering into the fourth quarter. And that's really what made up the guide.
Thanks, guys. I appreciate the comment.
Speaker Change: This question comes from Linda Bolton Weiser of D.A. Davidson. Go ahead, please.
Speaker Change: Yes, hello, thank you. So I was wondering, do you have any idea or projection or rough idea of how much interest rates would have to come down in order to make a material improvement kind of in your system sales?
Speaker Change: We don't have Linda an exact number but I think it's important it's a combination of interest rates are definitely a benefit if they come down because we are seeing
providers.
Speaker Change: slow to make a purchase because of the overall interest rate.
Speaker Change: And so that would help us. It's also the credit approvals that we've been managing through. It's not just the interest rates. So we've been working with our financing folks.
Speaker Change: to figure out how we can get more providers through the funnel who they're not able to extend credit. So those are most of the programs we've been really kind of focused in on.
Speaker Change: and can can you remind us like historically what percentage of system sales unit sales were more financed
Speaker Change: We've been moving substantially towards third-party financing. It varies by region, but well north of three-quarters of our sales are financed by third parties.
Okay, and then...
Speaker Change: I was just curious on the gross margin, when you explained that, I think you said that it benefited from higher equipment ASPs, average selling price, but yet you're talking about you're offering lower price point kind of units to help sales, to help unit sales. So I would think the mix is negative, but yet you said ASP helps gross margin. Can you explain that?
Speaker Change: Overall ASP did improve year over year and that's largely due to less discounting that we've done kind of in the past so that certainly does help. What's pressuring you know growth margin you know there's really
two things. One is higher overhead expense.
Speaker Change: And so, as our production levels come down when we're seeing lower demand, we take more of our indirect costs that pressures gross margins. So these are things like rent, labor, you know, non-material related costs that flow through the P&L with lower production.
Speaker Change: The second piece is elite sales, the fair market value of elites that have a higher cost basis. We continue to sell more of those items through, and while they contribute to revenue, they pressure our overall gross margin a bit.
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Okay, thank you very much.
Thanks, Wenda. Thank you.
and Corinne Wolfmeyer of Piper Sands.
Go ahead, please.
Speaker Change: Hey, good afternoon. Thanks for taking the question. So, to touch on the device sales a little bit more in Q3 and expectations for Q4, understanding there's still a macro impact and there's some more international pressure too. But I would think as well that as you start to offer this
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Speaker Change: looks to be implying still very pressured device sales in Q4. So can you help us try to better understand when we should start to see more more of a lift in those device sales from this good, better, best offering you're now doing?
Speaker Change: In the Americas, we primarily had good, better, best through most of the third quarter. And so we carried those similar trends into the fourth quarter. And so it's not going to be a major change in terms of product offering.
between Q3 and Q4.
Speaker Change: that we will see, you know, additional lift from that, but we're not in a position to talk about it today. We'd likely see it more in 2025, and we'll communicate more of the details on the Q4 call.
Speaker Change: got it okay and then can you touch on as you're consolidating operations but now you're offering
Speaker Change: more device options. Can you talk a little bit about the capacity in Long Beach to be able to do this? And I mean, does it require different lines for each type of device? And then as that demand picks up for all these different types of offerings, do you still feel like you have enough capacity to manage through that?
the device production of all three devices.
Speaker Change: The other benefit of consulting to Long Beach is we can more closely manage the quality of the devices being manufactured. So we're actually really pleased with the move to centralized manufacturing.
the tongue of Raymond Janney
and James.
Ah, yeah.
Speaker Change: Great, thanks for inviting me in. In terms of the Q4 step down in sales in EBITDA, it sounds like you're planning some pretty big changes in terms of your international footprint. So is that primarily China or are you taking a fairly deep look at all your international exposure across all markets as well?
Speaker Change: Yeah, I mean the question on go-to-market is really looking at where we don't have scale So we're taking our hard look globally at every activity. We're doing
Speaker Change: to make sure that we're producing the profit that we expect.
Speaker Change: to really drive profitability throughout the globe for our business. And so, you know, as we move to find distributors, it may be that, you know, our revenue may drop slightly in those markets, but our profitability and the expenses we have will change. So we'll keep you posted on, you know, the decision making, but we're not prepared to disclose that at this point.
Speaker Change: and why do you think consumables per device are still increasing especially when you consider all the macro headwinds you know the interest in lower-priced units you know given that backdrop it seems pretty remarkable that consumer consumables continue to grow and just wondering if you had some insight into into what's driving that
Speaker Change: I mean a couple of things, hydrofacial treatments continue to be popular and asked for, so that's the first thing.
Speaker Change: Second thing, you know, we're seeing increases in the U.S. in the dermatologists and plastic surgery channels, as well as med spas, and so the demand is there. And third is, you know, we don't have evidence, but when you launch a new product, even a booster, it's a reason for BDMs to go in and talk to the providers, not just about the booster, but about driving their business.
Speaker Change: The launch and the results, because we're still really early days, I think we'll have a better feel for how does a new launch drive consumables revenue per device. But we're happy with the numbers this quarter, and you could hypothesize that it may be due to a launch.
The End of the World War II
Speaker Change: And then just last question for me and I'll pass it on is you mentioned the pressures on gross margin just a point of clarification because I didn't quite understand but are you saying that in Q4 the margin is going to be down sequentially so you know if we're using the numbers from 69 it'll be lower than that 69.5% that you have this quarter or you're expecting gross margin to be down year-over-year from the 54.5 in Q4 of last year?
Speaker Change: I was referencing quarter over quarter from Q3, so we expect it to be lower than the 69% we reported in the third quarter. Got it, understood. Thank you so much.
This concludes our question and answer session.
I would like to turn the
conference back over to Marla Beck, CEO.
Thank you for any closing remarks.
Speaker Change: Thank you everyone for joining us today. I want to take a moment to express my sincere gratitude to the entire Beauty Health team for your unwavering dedication and commitment.
Speaker Change: Your focus on putting our providers at the center of everything we do is truly appreciated. The hard work, passion, and collaboration each of you brings to the table is what makes us successful. Thank you for your continued efforts and for driving our mission forward every day.
The End
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.