Q1 2025 The Beauty Health Co Earnings Call

May 8, 2025

And welcome to today's beauty Health Company first quarter 2025 earnings call.

At this time all participants are in a listen only mode. Later, you will have the opportunity to ask a question. During the question and answer session. You May Register to ask a question at any time by pressing the star and one on your telephone keypad.

Speaker Change: Draw yourself from the queue by pressing star into please note. This call is being recorded and I will be standing by if you should need any assistance and it's now my pleasure to turn the conference over to.

Norberto: Norberto <unk> Investor Relations.

Norberto: Thank you operator, and good afternoon, everyone. Thank you for joining the beauty health companies Conference call to review, our first quarter 2025 results.

We released our results earlier this afternoon, which can be found on our corporate website at <unk> Dot com.

Marla Beck: Joining me on the call today is <unk>, Chief Executive Officer, Marla Beck, along with our Chief Financial Officer, Mike Monahan.

Marla Beck: Before we begin I would like to remind everyone of the Companys Safe Harbor language management may make forward looking statements, including guidance and the underlying assumptions.

Marla Beck: Forward looking statements are based on expectations and involve risks and uncertainties that could cause actual results to differ materially.

Listeners are cautioned not to place undue reliance on any forward looking statements.

Marla Beck: Further discussion of risks related to our business. Please see the company's filings with the SEC.

Marla Beck: This call will present non-GAAP financial measures a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures are in the earnings press release.

Marla Beck: British to the SEC and available on our website.

Marla Beck: Following managements 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 Mark <unk>. Please go ahead more alone.

Speaker Change: Thank you Norberto and good afternoon, everyone. I appreciate you joining us to review our first quarter results I'm pleased to report a strong start to the year.

Speaker Change: Seeded our revenue and adjusted EBITDA guidance will continue to build momentum across our key strategic priorities.

Speaker Change: These results reflect the disciplined execution of our transformation strategy and the power of our recurring revenue model.

Speaker Change: Since taking the helm as CEO my focus has been clear stabilize operations.

Speaker Change: At night innovation every term beauty health to sustainable profitable growth, our first quarter results reflect this momentum with strong consumable sales across all regions and notable improvements in key metrics, including gross margin and bottom line profitability.

Speaker Change: Despite continued macro pressure on equipment sales, we exceeded revenue expectations at $69 $6 million above the high end of our guidance and delivered over $7 million of adjusted EBITDA.

Speaker Change: This achievement was driven by a favorable mix shift toward high margin consumables, better inventory management and operational cost discipline.

Speaker Change: <unk> grew over 8% and now represent over 70% of our revenue.

Speaker Change: Total active devices in the field to increase to over 35000 units versus approximately 32500 <unk> two units at the end of Q1 2024, highlighting the demand for hydro facial devices in medical aesthetics practice.

Speaker Change: Looking ahead to the rest of 2025 of our strategic focus remains anchored on three priorities enhancing commercial execution accelerating science backed innovation and deepening provider partnerships.

Speaker Change: Our first priority is enhancing commercial execution, we're beginning to see traction from our improved go to market approach. This includes our refined sales structure enhanced pricing flexibility and tools to drive smarter faster execution.

Speaker Change: We are generating results using greater analytical discipline, particularly in our direct markets in China. The transition to a third party distribution model is already underway preserving access to a high growth market, while simplifying operations and lowering capital intensity.

Speaker Change: We've also opened our device portfolio to more flexible pricing and product options, leading to increased demand, especially for Nansen Dale units, which represented 36% of system sales in the first quarter.

Speaker Change: Operationally, we completed the consolidation of our production in the U S. In the fourth quarter and moved it enhances quality increases agility and most significantly reduces tariff exposure.

Speaker Change: These strategic shifts are improving execution, lowering complexity and positioning us to scale more efficiently.

Speaker Change: Our second priority is accelerating and science backed innovation.

Speaker Change: Innovation remains central to our med tech midst beauty positioning or reigniting, our pipeline with clinical rigor and consumer relevant.

Speaker Change: Hydro lock H, a booster launched in the second half of 'twenty 'twenty four marked the most successful branded booster launched in our history.

Speaker Change: On that momentum and we're preparing to launch the new hydrophilic booster with our proprietary peptide complex in June targeting signs of aging a tops can concern among consumers later this year, we'll introduce three new treatment tips, one for the lip area and two more to extend our proprietary care of you.

Scalp solution.

Speaker Change: Our Backbar initiative as part of our wrap the treatment room strategy is another exciting milestone in skincare products that can be used as part of our in room hydro facial services will complement treatments improve outcomes and increased provider revenue potential the back bar rollout begins in the second half of this year and to expand beyond that.

Speaker Change: Treatment room, we're developing a dedicated skin care line further strengthening our consumer facing offerings.

Speaker Change: Each of these innovations is grounded in clinical validation reinforcing hydro facials leadership and science factor stomach.

Speaker Change: Our third priority is deepening provider partnerships strong provider relationships are foundational to our growth to support. This we have a dedicated business development team that partners with our providers to drive their revenue growth in the first quarter U S. National accounts were a highlight with strength in the medical sector, especially med spas dermatology.

Speaker Change: And wellness providers.

Speaker Change: We're building on this momentum with the relaunch of our U S. Loyalty program expected in Q3 2025. The program is designed to reward provider commitment and boosts engagement throughout our ecosystem, while driving incremental sales. We're also investing in brand and consumer engagement, a refreshed campaign launching this year well earlier.

Speaker Change: Awareness spotlight, our innovation pipeline and drive traffic to providers in summary, Q1 reflects solid execution of our transformation strategy, we exceeded both internal and external expectations saw continued growth in consumables.

Speaker Change: <unk> profitability and made strategic moves to strengthen our operational model.

Speaker Change: Focus on driving sustainable margin expansion and delivering against our three strategic pillars commercial excellence innovation and provider engagement to unlock long term value.

Mike: Mike over to you.

Mike: Thank you Marla I'm pleased to report we delivered the quarter above our initial expectations revenue for Q1 came in at $69 6 million adjusted gross margin was 71, 9% and adjusted EBITDA was $7 $3 million.

Mike: We continue to grow our global footprint, which adds to the recurring consumables revenue stream in the first quarter. We sold 862 total units worldwide at an average selling price of approximately 23000 and $455.

Mike: As of March 31, 2025, total active machines in the field increased to 35014 units versus 32000 and 530 units at the end of Q1 2024.

Mike: Consumable sales for the quarter totaled $49 4 million or an eight 2% increase versus the comparable prior year period with growth across all regions.

Mike: <unk> net sales increased three 5% in the Americas 42, 6% in APAC and seven 9% in EMEA.

Mike: Macroeconomic pressures continue to impact capital equipment purchasing decisions contributing to a 43, 5% year over year decline in global device sales.

Mike: Our good better best device strategy addresses this by expanding provider access by offering select system at lower price points.

Mike: This initiative is working well as Nansen diode systems represented 36% of total devices sold.

Speaker Change: And in Q1 last year.

Speaker Change: With this approach we believe we will be well positioned to capture additional market share when the macro environment improves.

From a regional perspective Q1 consolidated revenue in the Americas was down eight 1%, while revenue across APAC and EMEA declined by 34% and 21, 6% respectively.

Speaker Change: <unk> to the decline in APAC is the plan to go to market strategy change in China, we have begun transitioning the business from a direct to a distributor model and expect to make initial shipments during the second quarter of 2025.

Speaker Change: As part of this plan, we ensure that we warehouse enough capital equipment inventory in China to satisfy expected equipment demand for the remainder of the year that will not be subject to tariffs.

Speaker Change: We will have some exposure to tariffs for consumables sold into China. However, we are working through this with our new distribution partner.

Speaker Change: Gross margins came in strong driven primarily by disciplined demand planning overall management of inventory a favorable mix towards consumable net sales and improved operational processes.

Speaker Change: This led to reduced excess and obsolete inventory charges and reduced overhead spend spa.

Speaker Change: Specifically gross profit for the first quarter was $48 6 million comparing favorably to $48 4 million in the prior year period.

Speaker Change: Adjusted gross margin for the quarter was 71, 9% compared to 63, 4% in the prior year period.

Speaker Change: GAAP gross margin for the quarter was 69, 8% improving versus the prior year period as well as sequentially from 62, 7% in Q4 of 2024.

Speaker Change: Total operating expenses for the first quarter decreased by seven 3% to $60 6 million as we continue to manage our expenses selling and marketing expense was down approximately 22, 7% to $26 million, reflecting lower personnel related expenses, including share based compensation.

Speaker Change: <unk> lower sales commission marketing training and events expense.

Speaker Change: R&D expense was also down $1 8 million, while G&A expense was $33 6 million or an increase of 16, 3% driven primarily by higher legal fees and severance and restructuring expense, partially offset by lower personnel related expenses, including share based compensation and bad debt.

Speaker Change: <unk>.

Speaker Change: This led to an operating loss of $12 million in Q1, 2025, an improvement versus a loss of $17 million in the comparable prior year.

Speaker Change: Adjusted EBITDA of $7 3 million was above our implied guidance, reflecting lower operational spend and higher gross margin.

Speaker Change: We ended the quarter with approximately $373 million in cash and improvement from approximately $370 million on December 31 2024.

Speaker Change: This reflects the initial benefits of the cost reductions and operational actions, we have taken to improve the efficiency of the business.

Speaker Change: As of March 31 inventory was $65 6 million, a decrease compared to $69 $1 million in December.

Speaker Change: And full year 2025 sales of between $270 million to $300 million and adjusted EBITDA of 15 to 25 million.

Speaker Change: Compared to full year 2024, our full year 25 guidance assumes continued pressure on delivery systems due to financing pressure and uncertainty in the global market projected decline in all three regions specifically in China.

Speaker Change: Capital expenditures are expected to be approximately $10 million to $15 million for the full year 2025.

Speaker Change: For the second quarter, we are projecting sales of 71 to 76 million and an adjusted EBITDA of 2 million to $4 million.

Speaker Change: Our second quarter and full year guidance assumes no material deterioration in current general market conditions or other unforeseen circumstances beyond the companys control such as foreign currency exchange rates tariffs and trade restrictions.

Speaker Change: It also excluded any potential acquisitions dispositions or financing.

Speaker Change: Next I'd like to take a minute to address tariffs.

Speaker Change: We made several changes to the business over the past six months to position the company to be able to minimize the impact of tariffs.

Speaker Change: In the prior year, we moved our production from China back to the United States. As a result, while there are certain raw materials and componentry that is sourced internationally, 100% of our capital production is now in long Beach, California.

Speaker Change: Additionally, we strategically placed our capital equipment inventory across the globe based on projected demand. So that we are less exposed to import tariffs.

Speaker Change: On the supply side, we expect the impact of tariffs to be approximately $5 million of additional cost in 2025 based on what we know now and have factored that estimate into our projections.

Speaker Change: The tariff situation is very fluid as we get more information, we will adjust our expectations as needed.

In summary, we're encouraged by our first quarter performance, reflecting the execution of strategic initiatives.

Speaker Change: Despite a dynamic environment our strategy is delivering results and we're confident that the actions. We're taking are laying a strong and agile foundation for sustained profitable growth in the future.

Speaker Change: Looking ahead, we remain committed to creating lasting shareholder value by unlocking the significant growth potential of hydro facial as the market leader in the growing category of minimally invasive skin health treatments I'll now turn the call back tomorrow. Thank you Mike.

Speaker Change: We'd like to reiterate that we are on track with our strategic plan. Our focus remains anchored on our three priorities enhancing commercial execution accelerating science backed innovation and deepening provider partnerships. We're confident that as we continue to execute we will drive long term shareholder value.

Speaker Change: Like to close with a sincere. Thank you to all of our hydro facial employees around the globe. Our success would not be possible without your hard work and dedication. Thank you with that I'd like to turn the call over for Q&A.

Speaker Change: Thank you and at this time, if you would like to ask a question. Please press the star and one on your telephone keypad, you may or May do yourself from the queue at any time by pressing star to once again to the star one to ask a question.

Oliver Chen: And we will take our first question from Oliver Chen with TD Cowen. Please go ahead. Your line is open.

Speaker Change: Thank you this is Jon on for Oliver today.

Operator: Good day, everyone, and welcome to today's Beauty Health Company First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note this call is being recorded, and I will be standing by if you should need any assistance.

Despite a dynamic environment our strategy is delivering results and we're confident that the actions. We're taking are laying a strong and agile foundation for sustained profitable growth in the future.

Speaker Change: Love some perspectives on key drivers behind better profitability for the year. He puts and takes there and what are potential areas of upside to your full year guide as well and just one more question on the end consumer stream are you seeing any signs of pullback from the <unk>.

Speaker Change: And consumer as the macro remains uncertain. Thank you so much.

Speaker Change: Mike Why don't you take the start of the question and then I'll take the consumer grades.

Speaker Change: Our guidance implies slight improvement in the back half of 2025, especially however, given the uncertainty regarding the macro environment, we still remain somewhat cautious and factored that in however, we got it we have a number of initiatives, where we're executing on to drive a return to growth, including lower priced equipment off.

Norberto Aja: It is now my pleasure to turn the conference over to Norberto Aja, Investor Relations. Thank you, operator. And good afternoon, everyone.

Speaker Change: I would like to reiterate that we are on track with our strategic plan. Our focus remains anchored on our three priorities enhancing commercial execution accelerating science backed innovation and deepening provider partnerships. We're confident that as we continue to execute we will drive long term shareholder value.

Norberto Aja: Thank you for joining the Beauty Health Company's conference call to review our first quarter 2025 results. We released our results earlier this afternoon, which can be found on our corporate website at beautyhealth.com.

Speaker Change: I'd like to close with a sincere. Thank you to all of our hydro facial employees around the globe. Our success would not be possible without your hard work and dedication. Thank you with that I'd like to turn the call over for Q&A.

Speaker Change: Options improve sales execution and investment and innovation.

Speaker Change: So we will keep investors updated throughout the year on these initiatives as we continue to look to drive incremental profitability and growth.

Norberto Aja: Joining me on the call today is Beauty Health's Chief Executive Officer, Marla Beck, along with our Chief Financial Officer, Mike Monahan.

Speaker Change: A little bit about what we're seeing with consumers you know our consumable sales growth continues to be strong and what we're seeing is.

Norberto Aja: Before we begin, I would like to remind everyone of the company's safe harbor language, management may make forward looking statements, including guidance and underlying assumptions. Four linking statements are based on expectations and involve risks and uncertainties that could cause actual results to differ materially. Listeners are cautioned not to place undue reliance on any forward-looking statement.

Speaker Change: <unk> growth in our signature treatments, which is our core everyday our team at which shows that hydro facial as a part of our consumers' everyday skin health would change we are seeing slightly lower adoption of our luxury treatments and we have a lot of bright spots, we're seeing with the consumer the dermatology and walnuts sectors are real.

Call Moderator: We will take our first question from Oliver Chen with TD Cowen. Please go ahead. Your line is open.

Speaker Change: Thank you this is Jon on for Oliver today.

Speaker Change: Well some perspectives on key drivers behind better profitability for the year. He puts and takes there and what are potential areas of upside to your full year guide as well and just one more question on the end consumer stream are you seeing any signs of pullback from the end consumer as the macro are you.

Norberto Aja: For a further discussion of risks related to our business, please see the company's filings with the FTC.

Speaker Change: <unk> strong our U S national accounts.

Specifically, our medical National accounts.

Norberto Aja: This call will present non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures are in the Concerning's press release, Burnished to the SEC, and available on our website.

Speaker Change: Significant growth.

And then you know, we're seeing a little softness in days pause in plastic.

Speaker Change: They fall on plastic surgeon channel, they're they're not growing as well if that makes sense because they are more luxury sort of less necessity services on some of the joint ontology and walnuts channels, but we do believe that the med spas in doctors offices that have loyal clientele will continue to drive patients and consumers into hydro facial treatments.

Speaker Change: Names on certain thank you so much.

Speaker Change: Mike Why don't you take the start of the question and then I'll take the consumer groups. So our guidance imply a slight improvement in the back half of 2025, especially however, given the uncertainty regarding the macro environment, we still remain somewhat cautious in the factor that in however, we got it we have a number of initiatives where exactly were exit.

Norberto Aja: Following management's prepared remarks, we will open the call for a question and answer session.

Marla Beck: With that, I would now like to turn the call over to our CEO, Marla Beck. Please go ahead, Marla. Thank you, Norberto. And good afternoon, everyone. I appreciate you joining us to review our first quarter results. I'm pleased to report a strong start to the year. We exceeded our revenue and adjusted EBITDA guidance and continue to build momentum across our key strategic priorities. These results reflected disciplined execution of our transformation strategy and the power of our recurring revenue model.

Speaker Change: They're minimally invasive and can be experienced every 30 days. They also have a more accessible price point than some of the other more expensive treatments in the sector.

Speaker Change: <unk> going to drive a return to growth, including lower priced equipment options improved sales execution and investment and innovation.

Speaker Change: Thank you I appreciate the color.

Speaker Change: So we will keep investors updated throughout the year on these initiatives as we continue to look to drive incremental profitability and growth.

Speaker Change: Thank you and your next question comes from the line of Susan Anderson with Canaccord Genuity.

Speaker Change: I'll talk a little bit about what we're seeing with consumers you know our consumable sales growth continues to be strong and what we're seeing is.

Marla Beck: Since taking the helm as CEO, my focus has been clear, stabilize operations, reignite innovation, and return Beauty Health to sustainable, profitable growth. Our first quarter results reflect this momentum with strong consumable sales across all regions, and notable improvements in key metrics, including gross margin and bottom line profitability. Despite continued macro pressure on equipment sales, we exceeded revenue expectations at $69.6 million above the high end of our guidance and delivered over $7 million of adjusted EBITDA. This achievement was driven by a favorable mixed shift toward high-margin consumables, better inventory management, and operational cost discipline. Consumables grew over 8% and now represent over 70% of our revenue.

Susan Anderson: Hi, good evening, Thanks for taking my questions and nice job on the corner.

Susan Anderson: I was wondering if maybe you can talk about the consumable is definitely a stand out across all the regions. Maybe if you could give some color on how.

Speaker Change: Growth in our signature treatments, which is our core everyday our team at which shows that hydro facial as a part of our consumers' everyday it's gonna help would change we are seeing slightly lower adoption of our luxury treatments.

Susan Anderson: How much spending launches such as the hydro launch is helping to drive that strength and also I was just looking at the APAC region. It looks like it did see a big pick up there if you talk about the drivers there Bob.

Speaker Change: Have a lot of bright spots, we're seeing with the consumer the dermatology and walnuts sectors are really strong our U S national accounts.

Bob: Oh I'll have Mike take the original part of it I'll talk briefly about hydro lock H, a hydro lock H a is really a traffic driver.

Speaker Change: Specifically, our medical national accounts have experienced significant growth.

Bob: For our practices as the practices and med spas can market, a new product to their consumers and drive additional visits. Additionally, it gives our sales force a reason to visit and talk with our.

Speaker Change: And then you know we're seeing a little softness in days father in plastic.

Speaker Change: They fall on plastic surgeon channel, they're they're not growing as well, but that makes sense because they are more luxury sort of less necessity services on some of the joint ontology them all those channels, but we do believe that the med spas in doctors offices that have loyal clientele will continue to drive patients and consumers into hydro facial treatments.

Bob: Our providers and create events around new product. So we are really excited about the potential that new products have to drive.

Marla Beck: Total active devices in the field increased to over 35,000 units versus approximately 32,500 units at the end of Q1 2024. Highlighting the demand for hydrofacial devices and medical aesthetics.

Bob: Consumer traffic and then.

Speaker Change: There are minimally invasive and can be experienced every 30 days. They also have a more accessible price point than some of the other more expensive treatments in the sector.

Bob: Provide a rab in L. A.

Bob: You know, we don't disclose sort of the specifics, but this makes us really excited about the hydrophilic launch that's coming and shown in terms of any regional color I'll pass it to Mike.

Marla Beck: Looking ahead to the rest of 2025, our strategic focus remains anchored on three priorities, enhancing commercial execution, accelerating science-backed innovation, and deepening provider partnerships. Our first priority is enhancing commercial execution. We're beginning to see traction from our improved go-to-market approach. This includes our refined sales structure, enhanced pricing flexibility, and tools to drive smarter, faster execution. We're generating results using greater analytical discipline, particularly in our direct markets. In China, the transition to a third-party distribution model is already underway, preserving access to a high-growth market while simplifying operations and lowering capital intensity. We've also opened our device portfolio to more flexible pricing and product options, leading to increased demand, especially for non-Sendaio units, which represented 36% of system sales in the first quarter.

Speaker Change: Thank you I appreciate the color.

Mike: Yeah, Hi, Susan you are correct, we did have improvement in year over year in the overall APAC region for consumables, a big piece of it was China.

Thank you and your next question comes from the line of Susan Anderson with Canaccord Genuity.

Susan Anderson: Hi, good evening, Thanks for taking my questions and nice job on the corner and I was wondering if maybe you can talk about the consumables and there's definitely a stand out across the region as maybe if you could give some color on how much the new launches such as the hydro launch is helping to drive that strength and also I was just looking at the APAC region. It looks like it is.

Bob: The team did a good job.

Mike: With less discounting and really selling some of the.

Bob: The items into our existing consumer base.

Bob: Okay, Great and then I guess.

Bob: Just looking at the Carolina did you say, what the timing of that would be I'm not sure. If I missed that and then I guess, how should we think about what that will look like is it gonna be kind of a suite of products are they gonna be you know.

Susan Anderson: And see a big pick up there if you could talk about the drivers there.

Susan Anderson: Oh I'll have Mike take the regional part, but I'll talk briefly about hydro lock H, a hydro lock H a is really a traffic driver.

Bob: A couple of products or how should we think about that when the launch happens.

Susan Anderson: For practices as the practices and med spas can market, a new product to their consumers and drive additional visits. Additionally, a it gives our sales force a reason to visit and talk with our.

Bob: Yeah. There is two parts the back bar launch, which is really the skincare products that can be used in the treatment room is slated for the back half of this year. So it has a number of skus, but it'll be very early days I mean, the plan is to build a more comprehensive line.

Bob: With the launch this fall as they start and then skincare is really slated for the beginning of next year or so back bar penetrating around back half of this year of skincare and the beginning of next year.

Marla Beck: Operationally, we completed the consolidation of our production in the U.S. in the fourth quarter, a move that enhances quality, increases agility, and most significantly reduces tariff exposure. These strategic shifts are improving execution, lowering complexity, and positioning us to scale more efficiently.

Susan Anderson: Our providers and create events around new products. So we are really excited about the potential that new products have to drive.

Susan Anderson: Consumer traffic and then.

Susan Anderson: Provider revenue you know, we don't disclose sort of the specifics, but this makes us really excited about the hydrophilic launch that's coming in June in terms of any regional color I'll pass it to Mike.

Bob: Okay, great. Thanks, so much good luck the rest of the year.

Bob: Thank you.

Marla Beck: Our second priority is accelerating science-backed innovation. Innovation remains central to our MedTech Meets Beauty positioning. We're reigniting our pipeline with clinical rigor and consumer relevance. The HydroLock HA booster launched in the second half of 2024 marked the most successful branded booster launched in our history. Building on that momentum, we're preparing to launch the new hydrophilic booster with our proprietary PEP-9 complex in June, targeting signs of aging, a top skin concern among consumers. Later this year, we'll introduce three new treatment tips, one for the lip area and two more to extend our proprietary care review scalp solution.

Speaker Change: Your next question comes from the line of Jon Block with Stifel. Please go ahead. Your line is open.

Jon Block: Alright, thanks, guys good afternoon.

Mike: Yeah, Hi, Susan.

Mike: Correct, we did have improvement in year over year in the overall APAC region for consumables, a big piece of it was China.

Speaker Change: Gross margin really strong in the quarter, So maybe I'll start there.

Speaker Change: Mike is this the new run rate call. It I'm guessing that's the main driver to.

Mike: The team did a good job.

Speaker Change: The positive EBITDA revision despite the top line being unchanged, maybe if you can provide some color there and that'll assess a follow up.

Mike: With less discounting and really selling some of the.

Mike: The items into our existing consumer base.

Speaker Change: Sure John.

Mike: Okay, Great and then I guess.

Speaker Change: So in the quarter, we did have a strong quarter for gross margin I mentioned that a little bit in the script and a credit to the operations team and the organization was really drove efficiencies throughout our supply chain that was a big piece of it.

Mike: Just looking at the Carolina did you say, what the timing of that would be I'm not sure. If I missed that and then I guess, how should we think about what that will look like is it going to be kind of a suite of products are they gonna be you know of.

Marla Beck: Our Backbar initiative as part of our Wrap the Treatment Room strategy is another exciting milestone. These skin care products that can be used as part of our in-room hydrafacial services will complement treatments, improve outcomes, and increase provider revenue potential. The Backbar rollout begins in the second half of this year.

Mike: Couple of products or how should we think about that when the launch happens.

Speaker Change: The team has done a really good job tightening up demand planning. So we minimize write offs and then also the mix component that we had a high percentage of consumables in Q1.

Mike: Yeah, there's two parts of the backfire launch, which is really the skincare products that can be used in the treatment room is slated for the back half of this year. So it has a number of skus, but it'll be very early days I mean, the plan is to build a more comprehensive line with with the launch. This fall is the start.

Speaker Change: Because some of it was from from just overall performance of consumables was strong and then we're continuing to see some pressure on the capital equipment side. So that mix helped us out for Q2 and the remainder of the year I would expect it to step down from Q1 for a couple of reasons. One is I would expect a slightly higher percentage.

Marla Beck: And to expand beyond the treatment room, we're developing a dedicated skin care line, further strengthening our consumer-facing offering. Each of these innovations is grounded in clinical validation, reinforcing hydrofacial leadership and science-backed aesthetics.

Mike: And then skincare is really slated for the beginning of next year or so backbone in the treatment room back half of this year of skincare and the beginning of next year.

Speaker Change: <unk> of equipment purchases as a percentage of revenue going forward is the way we've modeled it in and then secondly, the tariff and import costs that we mentioned, while we were able to minimize it there where we are expecting an impact this year and that will flow through our overall cost of sales.

Marla Beck: Our third priority is deepening provider partnership. Strong provider relationships are foundational to our growth. To support this, we have a dedicated business development team that partners with our providers to drive their revenue growth. In the first quarter, US national accounts were a highlight with strength in the medical sector, especially med spas, dermatology, and wellness providers.

Speaker Change: Okay, great. Thanks, so much good luck the rest of the year.

Thank you.

Call Moderator: Thank you and your next question comes from the line of Jon Block with Stifel. Please go ahead. Your line is open.

Jon Block: Great. Thanks, guys good afternoon.

Jon Block: Rosemont is in really strong in the quarter, So maybe I'll start there.

Speaker Change: Got it very helpful. And then maybe the second question, maybe a two parter.

Jon Block: Like is this the new run rate core and I'm guessing that's the main driver.

Marla Beck: We are building on this momentum with the relaunch of our U.S. Loyalty Program expected in Q3 2025. The program is designed to reward provider commitment and boost engagement throughout our ecosystem while driving incremental sales.

Speaker Change: First is on the good better best you've now got a bunch of the different systems out there. So I'm just curious if you see a difference in the actual consumable utilization from call. It the good better best strategy.

Jon Block: The positive EBITDA revision despite the top line being unchanged, maybe you can provide some color there and those sets of follow up.

Jon Block: Sure Hey, Joe Yeah. So.

Marla Beck: We're also investing in brand and consumer engagement. A refresh campaign launching this year will elevate awareness, spotlight our innovation pipeline, and drive traffic to providers.

Jon Block: In the quarter, we did have a strong quarter for gross margin I mentioned that a little bit in the script a credit to the operations team and the organization was really drove efficiencies throughout our supply chain that was a big piece of it.

Speaker Change: Out in the field and then like to go back to the tariffs of $5 million hit this year, but there does seem to be a lot of planning to your point to avoid or limit the import tariff. So when we think forward to 'twenty six and you can't get all the inventory out there in advance of tariff implementation does the 5 million.

Marla Beck: In summary, Q1 reflects solid execution of our transformation strategy. We exceeded both internal and external expectations, saw continued growth in consumables, improved profitability, and made strategic moves to strengthen our operational model. We're focused on driving sustainable margin expansion and delivering against our three strategic pillars, commercial excellence, innovation, and provider engagement to unlock long-term value.

Jon Block: The team has done a really good job tightening up demand planning. So we minimize write offs and then also the mix component that we had a high percentage of consumables in Q1.

Speaker Change: Run rate or does that number change dramatically as we think about next year. Thank you.

Jon Block: Because some of it was from from just overall performance of consumables was strong and then we're continuing to see some pressure on the capital equipment side. So that mix helped us out for Q2 and the remainder of the year I would expect it to step down from Q1 for a couple of reasons. One is I would expect a slightly higher percentage.

Speaker Change: Yeah, It's a great question about consumables utilization between the devices. They all perform a similar treatment with <unk>, having some more bells and whistles are including lymphatic treatment in terms of what we're seeing the benefit of having some doubts.

Mike Monahan: Mike, over to you. Thank you, Marla. I'm pleased to report we delivered the quarter above our initial expectations. Revenue for Q1 came in at $69.6 million, adjusted gross margin with 71.9%, and adjusted EBITDA with $7.3 million. We continue to grow our global footprint, which adds to the recurring consumables revenue stream. In the first quarter, we sold 862 total units worldwide at an average selling price of approximately $23,455. As of March 31, 2025, total active machines in the field increased to 35,014 units versus 32,530 units at the end of Q1 2024. Consumable sales for the quarter totaled $49.4 million, or an 8.2% increase versus the comparable prior year period, with growth across all regions.

Jon Block: <unk> of equipment purchases as a percentage of revenue going forward is the way we've modeled it in and then secondly, the tariff and import costs that we mentioned, while we're able to minimize it there where we are expecting an impact this year and that will flow through our overall cost of sales.

Speaker Change: And the field is that there is a tool that helps the provider of select which booster for the consumer on the on as part of the prompting on the screen. So we did see historically more boosters used with this and do relative to the other devices. So that is something we watch and we are.

Speaker Change: Focus on getting pull through.

Speaker Change: Got it very helpful and maybe a second question, maybe a two parter.

Speaker Change: New stores, among elite and Allegro users also but in terms of sort of our day to day core consumables are all three devices use all of the base.

Speaker Change: The first is on the good better best you've now got a bunch of the different systems out there. So I'm just curious if you see a difference in the actual consumable utilization from call. It the good better best strategy.

Speaker Change: Solutions that go into the devices. So good question.

Speaker Change: Out in the field and then like to go back to the tariffs the $5 million hit this year, but there does seem to be a lot of planning to your point to avoid or limit the import tariffs. So when we think forward to 'twenty six and you can't get all the inventory out there in advance of tariff implementation does the 5 million.

Speaker Change: And on the tariffs as I understood. The second part of your question.

Mike Monahan: Consumable net sales increased 3.5% in the Americas, 42.6% in APAC, and 7.9% in EMEA. Macroeconomic pressures continue to impact capital equipment purchasing decisions, contributing to a 43.5% year-over-year decline in global device sales. Our good, better, best device strategy addresses this by expanding provider access by offering select systems at lower price. This initiative is working well, as non-Syndeo systems represent 36% of total devices sold globally. and in Q1 last year. With this approach, we believe we will be well positioned to capture additional market share when the macro environment improves. From a regional perspective, Q1 consolidated revenue in the Americas was down 8.1%, while revenue across APAC and EMEA declined by 30.4% and 21.6% respectively.

Speaker Change: The team did a good job of really good job kind of anticipating some of the tariffs and positioning the company. So we could minimize the impact this year.

Speaker Change: Projecting into 2026 is early I would say, where we sit today. The situation is so fluid and keeps changing I will say the team is continually looking at ways to onshore some of the purchases to make sure that we're even better positioned kind of going forward, but we'll have more.

Speaker Change: In the run rate or does that number change dramatically as we think about next year. Thank you.

Speaker Change: More of an update into.

Speaker Change: Into that you know in the upcoming quarters once we have a little bit more visibility about where this might settle.

In terms of what we're seeing the benefit of having some doubts and the field is that there's a tool that helps the provider of select which booster for the consumer on the on as part of the prompting on the screen. So we did see historically more boosters used with.

Speaker Change: Understood Thanks for Doug.

Speaker Change: Thank you and your next question comes from the line of Olivia Tong with Raymond James. Please go ahead. Your line is open.

Great. Thanks. Good afternoon. My first question is on the South Clark the sales guide and your outlook for the year at the midpoint seems to suggest a mid teens decline, which is in line with what you reported for Q1. So first of all why wouldn't the run rate be a little bit better as the year progresses, especially if you have more new products and placed them as long as the material.

Speaker Change: Some do relative to the other devices. So that is something we watch and we are focused on getting them pull through and the boosters among.

Mike Monahan: Contributing to the decline in AIPAC is the planned go-to-market strategy change in China. We have begun transitioning the business from a direct to a distributor model and expect to make initial shipments during the second quarter of 2025. As part of this plan, we ensure that we warehouse enough capital equipment inventory in China to satisfy expected equipment demand for the remainder of the year that will not be subject to tariffs. We will have some exposure to tariffs for consumables sold into China. However, we are working through this with our new distribution partner. Gross margins came in strong, driven primarily by disciplined demand planning, overall management of inventory, a favorable mix towards consumable net sales, and improved operational profitability.

Speaker Change: And Ah Library users also but in terms of sort of our day to day core consumables are all three devices use all of the base.

Speaker Change: Easing comps and then secondly.

Speaker Change: Your Q2 guide would suggest there's a deceleration in the rate of sales.

Speaker Change: Solutions that go into the devices. So good question.

Speaker Change: Sequentially versus Q1.

Speaker Change: Why would that be the case.

Speaker Change: And on the tariffs as I understood. The second part of your question you're right. The team did a good job of really good job kind of anticipating some of the tariffs and positioning the company. So we could minimize the impact this year.

Speaker Change: Yes, one of the Hi, How're you doing one of the drivers that offset the guide. So we add we exceeded where we thought we were going to be in Q1, but we maintain the guidance we have before largely driven by what's going on in APAC, and specifically, China and so with the tariffs were.

Speaker Change: Projecting into 2026 is early I would say, where we sit today the situations so fluid and keeps changing I will say the team is continually looking at ways to onshore some of the purchases to make sure that we're even better positioned kind of going forward, but we'll have more.

Speaker Change: They are now we are positioned well on the capital side, but we lowered our expectations in terms in terms of the consumable sales for the for Q2 and the remainder of the year.

Mike Monahan: This led to reduced excess and obsolete inventory charges and reduced overhead spend. Specifically, gross profit for the first quarter was $48.6 million, comparing favorably to $48.4 million in the prior year period. Adjusted gross margin for the quarter was 71.9% compared to 63.4% in the prior year period. Gap gross margin for the quarter was 69.8%, improving versus the prior year period, as well as sequentially from 62.7% in Q4 of 2024. Total operating expenses for the first quarter decreased by 7.3% to $60.6 million as we continue to manage our expenses. Selling and marketing expense was down approximately 22.7% to $26 million, reflecting lower personnel-related expenses, including share-based compensation, lower sales commission, marketing, training, and events expenses.

Speaker Change: Because of where the tariffs kind of say it so thats kind of an offset to some of the improvements we're seeing and that's really one of the larger drivers.

Speaker Change: You have an update.

Speaker Change: Into that you know in the upcoming quarters once we have a little bit more visibility about where this might settle.

Speaker Change: What you mentioned in terms of a bit of a slowdown in the year over year comp in second quarter.

Speaker Change: Understood. Thanks for your time.

Speaker Change: Thank you and your next question comes from the line of Olivia Tong with Raymond James. Please go ahead. Your line is open.

Speaker Change: Got it and then just following up on gross margin, obviously very very strong Q1.

Olivia Tong: Great. Thanks. Good afternoon. My first question is on the South Clark the sales guide and your outlook for the year at the midpoint seems to suggest a mid teens decline, which is in line with what you report for Q1. So first of all why wouldn't the run rate be a little bit better as the year progresses, especially if you have more new products in place.

Speaker Change: And I'm just trying to understand the sustainability of that I know you mentioned.

Speaker Change: More equipment purchase and tariffs, but typically your gross margins higher in the second happened late in the first half. So should we expect that to continue or or not because of the incremental incrementally of expenses related to tariffs.

Speaker Change: As long as the material easing comps and then secondly.

Speaker Change: The ladder.

Speaker Change: We're expecting and projecting that to have a larger impact starting a bit in Q2, the mostly in the second half of the year as we run down our inventory and start flowing through some of the purchases that we would have to make at the higher cost.

Speaker Change: Your Q2 guide would suggest there's a deceleration in the rate of sales.

Speaker Change: Uh huh.

Mike Monahan: R&D expense was also down $1.8 million, while G&A expense was $33.6 million, or an increase of 16.3%, driven primarily by higher legal fees and severance and restructuring expense, partially offset by lower personnel-related expenses, including share-based compensation and bad debt recovery. This led to an operating loss of $12 million in Q1 2025, an improvement versus a loss of $17 million in the comparable prior year. Adjusted EBITDA of $7.3 million was above our implied guidance, reflecting lower operational spend and higher gross margin. We ended the quarter with approximately $373 million in cash, an improvement from approximately $370 million on December 31, 2024.

Speaker Change: Sequentially versus Q1, why would that be the case.

Speaker Change: Yeah, one of the Hi, How're you doing one of the drivers that offset the guide. So we add we exceeded where we thought we were going to be in Q1, but we maintain the guidance we had before largely driven by what's going on in APAC, and specifically, China and so with the tariffs.

Speaker Change: Okay. So the tariffs will eat up to see the normal seasonality that you see in terms of first half versus second half economics, that's the way we projected it correct.

Speaker Change: Understood. Thank you so much thank you.

Speaker Change: Thank you and your next question comes from the line of Ashley Hogan with Jefferies. Please go ahead. Your line is open.

Speaker Change: Where they are now we are positioned well on the capital side, but we lowered our expectations in terms in terms of the consumable sales for the for Q2 and the remainder of the year because of where the tariffs kind of say so that's kind of an offset to some of the improvements we're seeing and that's really one of the larger drivers.

Speaker Change: Hi, This is sidney on per Ashley I'm, just wondering how you kind of think about the terminal Nick.

Speaker Change: Favorable as a percent of sales and where you kind of want that to ultimately shake out and then also just thinking about consumables by region any different and try and do it all out any level of attach rate any any kind of detail there would be helpful. Thank you.

Speaker Change: For what you mentioned in terms of a bit of a slowdown in the year over year comp in second quarter.

Mike Monahan: This reflects the initial benefits of the cost reductions and operational actions we have taken to improve the efficiency of the business. As of March 31st, inventory was $65.6 million, a decrease compared to $69.1 million in December.

Speaker Change: Got it and then just following up on gross margin, obviously very very strong Q1.

Speaker Change: Mike do you want me to take that.

Mike: Sure. So the first part of your question.

Speaker Change: And I'm just trying to understand the sustainability of that I know you mentioned.

Speaker Change: For our part we don't have a targeted mix.

Mike: Or where in this macro environment.

Mike Monahan: In full year 2025 sales of between 270 to 300 million and adjusted EBITDA 15 to 25 million. Compared to full year 2024, our full year 2025 guidance assumes continued pressure on delivery systems due to financing pressure and uncertainty in the global market, projecting decline in all three regions, specifically in China. capital expenditures are expected to be approximately 10 to 15 million for the full year 2025. For the second quarter, we are projecting sales of $71 to $76 million and an adjusted EBITDA of $2 million to $4 million. Our second quarter and full year guidance assumes no material deterioration in current general market conditions or other unforeseen circumstances beyond the company's control, such as foreign currency, exchange rates, tariffs, and trade restrictions.

Mike: We're.

Mike: We're being where we expect to grow overall capital equipment kind of in the future, we're not positioned to do that or forecasting to do that this year.

Speaker Change: The ladder.

Mike: So it's really the mix is going to depend on where the capital equipment sales kind of level out, but our belief is that there's still a significant tam for our products and brands and so we're really positioning the company to return to growth.

Mike: There on the regional piece for consumables the largest piece I mentioned this earlier, we expect pressures really in APAC and China region, that's driven by where we are with.

Speaker Change: Okay. So the tariffs will eat up to see the normal seasonality that you see in terms of first half versus second half economics, that's the way we projected it correct.

Speaker Change: Understood. Thank you so much.

Mike: The tariff situation.

Speaker Change: Yes.

Call Moderator: Thank you and your next question comes from the line of Ashley Hogan.

Mike: So for our projections in the back half of this year and even to some degree in Q2, we reduced our consumable sales expectations assuming that the tariffs that are currently in place will start.

Speaker Change: Please go ahead your line is open.

Sidney: Hi, This is sidney on per Ashley I'm, just wondering how you kind of think about the terminal mix of.

Mike Monahan: It also excluded any potential acquisitions, dispositions or findings.

Sidney: Favorable as a percent of sales and where you kind of want that to ultimately shake out.

Mike: Thank you.

Mike Monahan: Next, I'd like to take a minute to address Tara. We made several changes to the business over the past six months to position the company to be able to minimize the impact of tariffs. In the prior year, we moved our production from China back to the United States. As a result, while there are certain raw materials and componentry that is sourced internationally, 100% of our capital production is now in Long Beach, California. Additionally, we strategically placed our capital equipment inventory across the globe based on projected demand so that we are less exposed to import tariffs.

Speaker Change: Thank you and your next question comes from the line of Bruce Jackson with the Benchmark Company. Please go ahead. Your line is open.

Sidney: Then also just thinking about consumables by region any difference in trying to call out any level of attach rate any any kind of detail there would be helpful. Thank you.

Speaker Change: Hi, good afternoon, thanks for taking the questions.

Speaker Change: I'm, hoping we could go back to the consumer demand dynamics, you said that the medical side it was little bit weak during the quarter.

Sidney: Mike do you want to take them.

Sidney: Sure. So the first part of your question.

Speaker Change: For our part we don't have a targeted mix.

Speaker Change: And that the health and beauty side is holding up pretty well.

Sidney:

Sidney: We're in this macro environment.

Speaker Change: Is it still the case quarter to date, given the change in consumer confidence.

Sidney: We're.

Sidney: We're being where we expect to grow overall capital equipment kind of in the future, we're not positioned to do that or forecasting to do that this year.

Speaker Change: Yeah. Good question, Bruce I mean, what I did.

Mike Monahan: On the supply side, we expect the impact of tariffs to be approximately $5 million of additional costs in 2025, based on what we know now, and have factored that estimate into our projection. The tariff situation is very fluid. As we get more information, we will adjust our expectations as...

The dermatology and wellness sectors are really strong and so it's interesting sort of bifurcate it right med spa dermatology wellness Super strong.

Sidney: So it's really the mix is going to depend on where the capital equipment sales kind of level out, but our belief is that there is still a significant tam for our products and brands and so we're really positioning the company to return to growth there on the regional piece for consumables the largest piece.

Speaker Change: With growth and you know, adding some of the boost stores in a luxury treatments, it's the day spas and plastic surgeons.

Mike Monahan: In summary, we're encouraged by our first quarter performance reflecting the execution of strategic initiatives. Despite a dynamic environment, our strategy is delivering results, and we're confident that the actions we're taking are laying a strong and agile foundation for sustained profitable growth in the future. Looking ahead, we remain committed to creating lasting shareholder value by unlocking the significant growth potential of hydrafacial as the market leader in the growing category of minimally invasive skin health treatments.

Speaker Change: Plastic surgery practices that did not grow as well as the others and as I mentioned I'm. It makes a little bit of a sentence right which is.

Sidney: And this earlier, where we expect pressures really in APAC and China region, that's driven by where we are with.

As a plastic surgery locations and you know going for occasional today, but it's not as necessity is going to draw them in for treatment.

Sidney: The tariff situation.

Sidney: So for our projections in the back half of this year and even to some degree in Q2, we reduced our consumable sales expectations assuming that the tariffs that are currently in place will start.

Speaker Change: And going to get some of your other treatments at the germs, so or the med spa. So I think it makes sense, but we're seeing health across all sectors in terms of our signature hydro facial treatment.

Sidney: Thank you.

Marla Beck: I'll now turn the call back to Marla. Thank you, Mike. We'd like to reiterate that we are on track with our strategic plan. Our focus remains anchored on our three priorities, enhancing commercial execution, accelerating science backed innovation and deepening provider partnerships. We're confident that as we continue to execute, we will drive long term shareholder value.

Speaker Change: Thank you and your next question comes from the line of Bruce Jackson with the Benchmark Company. Please go ahead. Your line is open.

Speaker Change: Some some trading away from the adoption of our more luxury treatments.

Bruce Jackson: Hi, good afternoon, thanks for taking my questions.

Speaker Change: Okay. That's helpful. Thank you.

Bruce Jackson: I'm, hoping we could go back to the consumer demand dynamics, you said that the medical side, it's a little bit weak during the quarter.

Speaker Change: Sure. Thanks Bruce.

Speaker Change: Thank you and your next question comes from the line of Karen <unk> with Piper Sandler. Please go ahead. Your line is open.

Marla Beck: I'd like to close with a sincere thank you to all of our Hydrofacial employees around the globe. Our success would not be possible without your hard work and dedication. Thank you.

Bruce Jackson: The health and beauty side is holding up pretty well.

Karen <unk>: Hi, this is down between thanks for taking our question.

Bruce Jackson: Still the case quarter to date, given the change in consumer confidence.

If you could talk a little bit about the marketing spend over the course of the year and then any color on spending tactics and campaigns to expect Ms. Sharon and then just how willing are you to flex as needed to protect the bottom line.

Operator: With that, I'd like to turn the call over for Q&A. Thank you and at this time if you would like to ask a question please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two.

Bruce Jackson: Yeah. Good question, Bruce I mean, what are the.

Bruce Jackson: Strong. So it's interesting, it's sort of bifurcated, right? Med Spa, dermatology, wellness, super strong, with growth and, you know, adding some of the the boosters in the luxury treatment. It's the day spa's.

Speaker Change: I'll have Mike talk about the spend in marketing and then I'll talk about some of the tactics.

Oliver Chen: Once again that is star and one to ask a question and we will take our first question from Oliver Chen with TD Cowan. Please go ahead your line is open. Thank you.

Speaker Change: Yeah, So overall, where we've modeled out that we'd hold sales and marketing as a percentage of revenue, we're targeting where we were last year the mix of where we're spending the dollars has changed kind of on a year over year basis, where we're starting to invest more dollars to drive the end consumer into the pro.

Bruce Jackson: and Plastic Surgery Practices that did not grow as well as the others.

Jonah: This is Jonah. And for Oliver today, I would love some perspectives on key drivers behind better profitability for the year, just key percentages there. And what are potential areas of size to your full year guide as well? And just one more question on the end consumer strength. Are you seeing any signs of pullback from the end consumer as the macro remains uncertain? Thank you so much.

Bruce Jackson: and as I mentioned, I make a little bit of sounds, right? Which is...

as...

Ah!

Bruce Jackson: Plastic surgery, locations and, you know, going for a facial to taste, but not as necessity is going to germ for treatments and going to get some of your other treatments of the germs. So, or the med spots. So I think it makes sense, but we're seeing health across. We're seeing health across.

Speaker Change: Bider and support our provider network and really kind of focusing in on that area.

Speaker Change: <unk>.

Speaker Change: To get behind the brand and support our provider base.

Speaker Change: I think you've covered it I mean pull through is really our critical focus and so that means a venting that means providing our added you know, giving our providers gifts with purchase to drive consumers into practice. So it's just an acute focus on ROI, we can get in partnership with our providers.

Mike Monahan: Mike, why don't you take the start of the question, then I'll take the consumer. Great. So our guidance implies slight improvement in the back half of 2025, especially, however, given the uncertainty regarding the macro environment, we still remain somewhat cautious and have factored that in. However, we have a number of initiatives we're executing on to drive a return to growth, including lower price equipment options, improved sales execution and investment in innovations. So we'll keep the investors updated throughout the year on these initiatives as we continue to look to drive incremental profitability and growth.

Bruce Jackson: All sectors in terms of our signature hydrocapital treatment is just some trading away from the adoption of our more luxury treatment.

Okay, that's helpful, thank you.

Sure, thanks, Bruce.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you. And your next question comes from the line of Korin, Wolfmeyer, with Piper Sandler. Please go ahead to the line is open.

Speaker Change: Yeah.

Speaker Change: Thank you and as a reminder, if you would like to ask a question. Please press the star and one on your telephone keypad now.

Speaker Change: Hi, this is Sarah, I'm Kathleen, thanks for taking our question. When I think to talk a little bit about the marketing spend over the course of the year and then any color on the spending tactics and campaigns to expect the share, and then just how willing are you to flex if needed to protect the bottom line? Thank you very much.

Speaker Change: We will take our next question from Ivan tie with BNP Paribas. Please go ahead. Your line is open.

Speaker Change: Q can you just kind of the progress made on the sheets.

Marla Beck: I'll talk a little bit about what we're seeing with consumers. You know, our consumable sales growth continues to be strong. And what we're seeing is strong growth in our signature treatments, which is our core everyday treatment, which shows that hydrofacial is a part of our consumers everyday skin health routines. We are seeing slightly lower adoption of our luxury treatments. And we have a lot of bright spots we're seeing with the consumer, the dermatology and wellness sectors are really strong. Our U.S. national accounts, specifically our medical national accounts have experienced significant growth. And then, you know, we're seeing a little softness in day spa and plastic, in the day spa and plastic surgeon channel.

Speaker Change: Our model in China.

Speaker Change: I don't know if you can clarify whether the parachute packages on a net basis after mitigating action.

Speaker Change: I'll have Mike talk about the spend in marketing and then I'll talk about some of the tactics.

Michael: So how about churn if you have seen more competition and congratulations Michael.

Mike: Yeah, so overall where we've modeled out that we've hold sales and marketing as a percentage of revenue we're targeting where we were last year, the mix of where we're spending the dollars has changed kind of on a year of your basis. We're starting to invest more dollars to drive the end consumer into the provider and support our provider network and really kind of focusing in on that area of spend to get behind the brand and support our provider We're starting to invest more dollars to drive the end

Speaker Change: Sure.

Michael: Thank you.

So I want to make sure I understood. The first part of the question I saw that there was a little bit of static so I apologize.

Michael: In terms of our transition to a distributor model for China.

Michael: We have begun that are far along so we've identified a partner and are working with them to transition all the operations. We expect we should complete the transition during kind of this quarter and then we'll continue to wind down the operations for the remainder.

James.

Marla Beck: They're not growing as well, but that makes sense because they're more luxury sort of less necessity services than some of the dermatology and wellness channels. But we do believe that the med spas and doctor's offices that have loyal clientele will continue to drive patients and consumers into hydrofacial treatments as they're minimally invasive and can be experienced every 30 days. They also have a more accessible price point than some of the other more extensive treatments in the sector.

Mike: Mike, you covered it. I mean, pull-through is really our critical focus.

Mike: And so that means, that means providing our, giving our providers gifts with purchase to drive consumers into practice. So, it's just an acute focus on an ROI we can get in partnership with our providers.

Michael: In the year and potentially into next year.

Michael:

Speaker Change: Can you repeat the second part of it were hitting tariff question that I didn't quite hear and then I'll take the question on competition.

Speaker Change: Sure whether the tariffs impacting us on a net basis after they are mitigating actions.

Great, thank you.

[inaudible]

Call Moderator: Thank you. And as a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now.

Speaker Change: Uh huh.

Speaker Change: The tariffs we did not assume that we would pass through all of that expense.

Jonah: Thank you. I appreciate the callers. Thank you.

Speaker Change: And we will take our next question from the Vaughan Thai, with B&P Paraboss. Please go ahead and you are Linus Open. Thank you. Can you discuss this over a made-on-ershift or distributor model in China? And also, if you can clarify whether the Paris Impact is on a net basis after mitigating action. I also have a question if you have seen more competition and

Susan Anderson: And your next question comes from the line of Susan Anderson with Canaccord Genuinity. Hi, good evening. Thanks for taking my questions. Nice job on the quarter. I was wondering if maybe you could talk about the consumables. There's definitely a standout across all the regions. Maybe if you could give some color on also how much the new launches, such as the HydroLock launch is helping to drive that strength. And also just looking at the APAC region, it looks like it did see a big pickup there. If you could talk about the drivers there as well. Thanks.

Speaker Change: And we are starting to work through potential pass through of the expense too.

Speaker Change: To the our providers and in consumer so we're still evaluating that and haven't factored that in so we just stuck with the expense.

Speaker Change: And then in terms of competition you know we remain the category leader with over 60% market share in the U S. And we are the number one most requested facial treatment by consumers with a very high consumer MTS as compared to our competitors.

Thank you.

Thank you. Thank you.

Marla Beck: For more information visit www.FEMA.gov I'll have Mike take the regional part, but I'll talk briefly about HydroLockHA. HydroLockHA is really a traffic driver for practices as the practices and med spas can market a new product to their consumers. It drives additional visits. Additionally, it gives our sales force a reason to visit and talk with our providers and create events around new products. So we are really excited about the potential that new products have to drive consumer traffic and then, you know, provider revenue.

Speaker Change: So I want to make sure I answer the question. So the first part of the question I followed is there's a little bit of spatic to apologize in terms of our transition to a distributor model for China. We've begun that and are far along. So we've identified a partner and are working with them to transition all the operations.

Speaker Change: We're a gateway treatment. So we in our category we drive the most new patients to practices at core into point of sale data. We have and then we're really focused in on how well we pair it with other aesthetic treatments.

Speaker Change: We feel good about our positioning vis vis the competition and as we continue to double down on clinical back in for treatment of the products that complement our treatments.

Speaker Change: We expect we should complete the transition during kind of this quarter, and then we'll continue to line down the operations for the remainder in the year and potentially into next year.

Speaker Change: That gives us further distance from any of our other competitors that do not have clinical backing for any of their boosters or products that go with their treatment.

Speaker Change: Can you repeat the second part of the question? No, I get a tear of question that I didn't quite hear and then I'll take the question on composition. Sure, whether the times impact was on our next basis after the mitigating action.

Speaker Change: Thank you.

Okay. That's helpful. Thank you.

Mike Monahan: You know, we don't disclose sort of specifics, but this makes us really excited about the hydrophilic launch that's coming in June.

Speaker Change: Thank you and there are no further questions at this time I will now turn the call back Tomorrow, let back for closing remarks.

Mike Monahan: In terms of any regional color, I'll pass it to Mike. Yeah, hi, Susan, you're correct. We did have improvement in year over year in the overall APAC region for consumables. A big piece of it was China. The team did a good job, you know, with less discounting and really selling some of the items into our existing consumer base.

Speaker Change: So the tariffs, we did not assume that we would pass through all of that expense.

Speaker Change: Thank you for all to all of you for joining US today. We appreciate your time and I wish you the best.

Speaker Change: Thank you.

Speaker Change: and we are starting to work through, you know, potential, you know, pass-through of the expense to the our providers and then consumers. So we're still evaluating that and having factor that in, so we just factor the expense.

Speaker Change: Does conclude today's presentation. Thank you for your participation you may disconnect at any time.

Speaker Change: Yeah.

Speaker Change: Hum.

Speaker Change: And then in terms of composition, you know, we remain the category leader with over 60% market share on the US and we are the number one most requested facial treatment by consumers with a very high consumer NPS as compared to our competitors.

Speaker Change: [music].

Susan Anderson: Okay, great. And then, I guess, just looking at the skincare launch, did you say what the timing of that would be? I'm not sure if I missed that. And then, I guess, how should we think about what that will look like? Is it going to be kind of a suite of products? Or is it going to be, you know, a couple products? Or how should we think about that when the launch happens?

Speaker Change: We're a gateway treatment, so in our category, we drive the most new patients to practices according to point of fail data we have.

Marla Beck: Yeah, there are two parts. The Back Bar launch, which is really the skincare products that can be used in the treatment room is slated for the back half of this year. So it has a number of SKUs, but it'll be very early days. I mean, the plan is to build a more comprehensive line with the launch this fall as the start. And then skincare is really slated for the beginning of next year. So Back Bar in the treatment room, back half of this year, skincare in the beginning of next year.

Speaker Change: and then we're really focused in on how well we pair with other aesthetic treatments. So we feel good about our positioning vis-a-vis a competition and as we continue to double down our clinical backing for our treatments and the products that complement our treatments, that gives us further distance from any of our other competitors that do not have clinical backing for any of their boosters or products that go with their treatments.

Thank you. It's very clear and helpful. Thank you.

Susan Anderson: Okay, great. Thanks so much. Good luck the rest of the year. Thank you.

. . .

Call Moderator: Thank you. And there are my further questions at this time. I will now turn the call back to Marla Beck for closing remarks.

John Block: And your next question comes from the line of John Block with Stiefel. Please go ahead. Your line is open. Great. Thanks, guys. Good afternoon. Gross margin really strong in the quarter, so maybe I'll start there.

Marla Beck: Thank you for all of you for joining us today. We appreciate your time and wish you the best.

Speaker Change: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

John Block: You know, Mike, is this the new run rate call in? And I'm guessing that's the main driver to the positive EBITDA revision, despite the top line being unchanged. Maybe if you can provide some color there, and then I'll set the follow-up.

[inaudible]

Mike Monahan: Sure. Hi, John. So in the quarter, we did have a strong quarter for gross margin. I mentioned that a little bit in the script. Credit to the operations team and the organization. We really drove efficiency throughout our supply chain. That was a big piece of it. The team has done a really good job of tightening up demand planning, so we minimized write-offs. And then also the mix component that we had a high percentage of consumables in Q1, because some of the, from just overall performance of consumables was strong, and then we're continuing to see some pressure on the capital equipment side.

Mike Monahan: So that mix helped us out.

Mike Monahan: For Q2 and the remainder of the year, I would expect it to step down from Q1 for a couple of reasons. One is I would expect a slightly higher percentage of equipment purchases as of revenue going forward is the way we've modeled it in. And then secondly, the tariff and import costs that we mentioned, while we're able to minimize it, we are expecting an impact this year, and that will flow through our overall cost of sales. Got it. Very helpful.

Marla Beck: And maybe for the second question, maybe a two-parter. Marla, first, just on the Good, Better, Best, you know, you've now got a bunch of the different systems out there. So I'm just curious if you see a difference in the actual consumable utilization from, call it the Good, Better, Best strategy out in the field.

Mike Monahan: And then, Mike, to go back to the tariffs, the $5 million hit this year, but there did seem to be a lot of planning, to your point, to avoid or limit the import tariffs. So when we think forward to 26 and you can't get all the inventory out there in advance of tariff implementation, does the $5 million run rate or does that number change dramatically as we think about next year? Thank you. Yeah, it's a great question about consumables utilization between the devices. They all perform a similar treatment with Sendai having some more bells and whistles, including lymphatic treatment.

Marla Beck: In terms of what we're seeing, the benefit of having Sendaio in the field is that there's a tool that helps the provider select which booster for the consumer on as part of the prompting on the screen. So we do see historically more boosters used with the Sendaio relative to the other devices. So that is something we watch and we are focused on getting pull through in the boosters among, you know, elite and Allegro users also. But in terms of sort of our day to day core consumables, all three devices use all of the base solutions that go into the devices.

Mike Monahan: So good question. And on the tariffs, if I understood the second part of your question, you're right. The team did a good job, a really good job, kind of anticipating some of the tariffs and positioning the company so we could minimize the impact this year. You know, projecting into 2026 is early, I would say, where we sit today. The situation's so fluid and keeps changing. I will say the team is continually looking at ways to onshore some of the purchases to make sure that we're even better positioned kind of going forward.

Mike Monahan: But we'll have more of an update into that, you know, in the upcoming quarters, once we have a little bit more visibility about where this might settle.

John Block: Anderson. Thanks for your time. Thank you.

Olivia Tong: And your next question comes from the line of Olivia Tong with Raymond James. Please go ahead. Your line is open. Great, thanks. Good afternoon. My first question is on the sales guide. Your outlook for the year at the midpoint seems to suggest a mid-teens decline, which is in line with what you report for Q1.

Mike Monahan: So first, why wouldn't the run rate be a little bit better as the year progresses, especially if you have more new products in place, as well as the material easing and comps? And then secondly, your Q2 guide would suggest there's a deceleration in the rate of sales, you know, sequentially versus Q1. Why would that be the case? Thanks.

Mike Monahan: Hi, how are you doing? One of the drivers that offset the guide, so we exceeded where we thought we were going to be in Q1, but we maintained the guidance we had before, largely driven by what's going on in APAC and specifically China. And so, with the tariffs where they are now, we are positioned well on the capital side, but we lowered our expectations in terms of the consumable sales for Q2 and the remainder of the year because of where the tariffs kind of sit. So, that's kind of an offset to some of the improvements we're seeing, and that's really one of the larger drivers for what you mentioned in terms of a bit of a slowdown in the year-over-year confidence sector.

Olivia Tong: Got it.

Mike Monahan: And then just following up on gross margin, obviously, very, very strong Q1. And, and just trying to understand the sustainability of that. I know you mentioned more and more equipment purchase and tariff, but typically your growth margin is higher in the second half than it is in the first half. So should we expect that to continue or, or not because of the incremental incrementality of expenses related to tariff? The latter. You know, the tariffs are, we're expecting and projecting now to have a larger impact, starting a bit in Q2, but mostly in the second half of the year, as we run down our inventory and start flowing through some of the purchases that we have to make at the higher cost.

Olivia Tong: Okay, so the tariffs will eat up the normal seasonality that you see in terms of first half versus second half. That's the way we projected it, correct. Understood. Thank you so much. Thank you.

Ashley Helgans: And your next question comes from the line of Ashley Helgans. With Jeffreys, please go ahead. Your line is open.

Sydney: Hi, this is Sydney on for Ashley. I'm just wondering how you kind of think about the terminal mix of consumables as a percent of sales, and where you kind of want that to ultimately shake out. And then also just thinking about consumables by region, any difference in trend, do a call out, maybe level of attach rate, any any kind of detail there would be helpful. Thank you.

Mike Monahan: Mike, do you want to take that? Sure. So the first part of your question, for our part, we don't have a targeted mix. You know, where in this macro environment, it were We expect to grow overall capital equipment kind of in the future. We're not positioned to do that or forecasting to do that this year. So it's really the mix is going to depend on where the capital equipment sales kind of level out. But our belief is that there's still a significant TAM for our product and brand. And so we're really positioning the company to return to growth there.

Mike Monahan: On the regional piece for consumables, you know, the largest piece, and I mentioned this earlier, where we expect pressure is really in APAC and China region that's driven by, you know, where we are with the tariff situation. And so for our projections in the back half of this year, and even to some degree in Q2, we reduced our consumable sales expectations, assuming that the tariffs that are currently in place will stick. Thank you.

Bruce Jackson: And your next question comes from the line of Bruce Jackson with The Benchmark Company. Please go ahead. Your line is open. Hi, good afternoon. Thanks for taking the questions.

Marla Beck: I was hoping we could go back to the consumer demand dynamics. You said that the medical side was a little bit weak during the quarter, and that the health and beauty side is holding up pretty well. Is that still the case quarter to date, given the change in consumer confidence? Yeah, good, good question, Bruce. I mean, when I, the, the dermatology and wellness sectors are really strong. So it's interesting, it's sort of bifurcated, right? Med spa, dermatology, wellness, super strong, with growth and, you know, adding some of the boosters and the luxury treatment. It's the day spas and plastic surgeons that did plastic surgery practices that did not grow as well as the others.

Marla Beck: And as I mentioned, it makes a little bit of sense, right? Which is, as plastic surgery locations and, you know, going for a facial at a day spa, it's not as necessity as going to a derm for treatments and going to get some of your other treatments at the derms. So, or the med spa. So I think it makes sense, but we're seeing health across all sectors in terms of our signature hydrafacial treatment. It's just some, some trading away from the adoption of our more luxury treatments. Okay, that's helpful. Thank you. Sure. Thanks, Bruce.

Korinne Wolfmeyer: Thank you. And your next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead. Your line is open. Hi, this is Sarah on for Korinne. Thanks for taking our question.

Sydney: I'm wondering if you could talk a little bit about the marketing spend over the course of the year and then any color on the spending tactics and campaigns to expect this year. And then just how willing are you to flex if needed to protect the bottom line?

Marla Beck: I'll have Mike talk about the spend in marketing and then I'll talk about some of the tactics. Yeah, so overall, where we've modeled out that we hold sales and marketing as a percentage of revenue, we're targeting where we were last year, the mix of where we're spending the dollars has changed kind of on a year over year basis, where we're starting to invest more dollars to drive the end consumer into the provider and support our provider network and really kind of focusing in on that area of spend to get behind the brand and, you know, support our provider base.

Operator: Mike, you covered it. I mean, pull through is really our critical focus. And so that means eventing that means providing our ad, you know, giving our providers gifts with purchase to drive consumers into practice. So just an acute focus on an ROI we can get in partnership with our providers. Great, thank you. Thank you. And as a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now.

Navann Thai: And we will take our next question from Navann Thai with BNP Paribas. Please go ahead. Your line is open. Thank you.

Navann Thai: Can you discuss the progress made on the Shifu distributor model in China? And also, if you can clarify whether the Paris impact is on a net basis after mitigating action. You also have a chance if you have seen more competition and communication micro-dermatization lately. Thank you. So I want to make sure I answer that. So the first part of the question I followed, there was a little bit of static, so I apologize. In terms of our transition to a distributor model for China, we've begun that and are far along. So we've identified a partner and are working with them to transition all the operations.

Marla Beck: We expect we should complete the transition during kind of this quarter, and then we'll continue to wind down the operations for the remainder in the year and potentially into next year.

Mike Monahan: Can you repeat the second part of the question? There was a tariff question that I didn't quite hear, and then I'll take the question on competition. Sure. Whether the tariff impact was on a net basis after the mitigating action? So the tariffs, we did not assume that we would pass through all of that expense, and we are starting to work through potential pass-through of the expense to our providers and then consumers. So we're still evaluating that and haven't factored that in, so we just factored the And then in terms of competition, you know, we remain a category leader with over 60% market share in the US.

Marla Beck: And we are the number one most requested facial treatment by consumers with a very high consumer NPS as compared to our competitors. We're a gateway treatment. So in our category, we drive the most new patients to practices according to point of sale data we have. And then we're really focused in on how well we pair with other aesthetic treatments. So we feel good about our positioning vis-a-vis the competition. And as we continue to double down on our clinical backing for our treatments and the products that complement our treatments, that gives us further distance from any of our other competitors that do not have clinical backing for any of their boosters or products that go with their treatment.

Navann Thai: Thank you. That's very clear and helpful. Thank you.

Marla Beck: And there are no further questions at this time.

Operator: I will now turn the call back to Marla Beck for closing remarks. So thank you to all of you for joining us today. We appreciate your time and wish you the best. Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.

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