Q3 2025 Beauty Health Co Eaarnings Call
Speaker #1: Good day and welcome to the beauty , health Company . 2025 . Third Quarter Earnings Conference Call . All participants will be in listen only mode .
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Speaker #1: I would now like to turn over to Norberto Aja Investor Relations . Please go ahead .
Speaker #2: Thank you . Operator and good afternoon , everyone . Thank you for joining the Beauty Health Co company's conference call to review our third quarter 2025 results .
Speaker #2: We released our results earlier this afternoon , which can be found on our corporate website at Beauty Health Co . Joining me on the call today is Beauty Health Co Chief Executive Officer , Petramala .
Speaker #2: Along with her chief Financial Officer , Mike Monahan . Before we begin , I would like to remind everyone of the company's safe harbor language .
Speaker #2: Management may make forward looking statements , including guidance in underlying assumptions , forward looking statements are based on expectations and involve risks and uncertainties that could cause actual results to differ materially .
Speaker #2: Listeners are cautioned not to place undue reliance on any forward-looking statements. For further discussion of these risks related to our business, please see the company's filings with the SEC.
Speaker #2: This call will present non-GAAP financial measures , a reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is available in the earnings press release , which was furnished to the SEC and available on our website .
Speaker #2: Following management's prepared remarks , we will open the call for a question and answer session . With that , I would now like to turn the call over to our CEO , Pedro Malo .
Speaker #2: Please go ahead . Pedro .
Speaker #3: Thank you . Norberto . So good afternoon , everybody , and thank you for joining us today . Before I get into our quarterly results , let me by start thanking Marla Beck for her leadership doing an important transition period .
Speaker #3: The beauty health team did a fantastic job stabilizing the business and positioning it for the next phase of growth . This next phase is actually one of the reasons why I chose to lead Beauty Health Co .
Speaker #3: We have an incredible opportunity to leverage our Hydrafacial device platform and expand it into a category leading ecosystem of skin health technology solutions .
Speaker #3: This is a unique company with a proven and resilient razor and blade business model , which is anchoring recurring high margin consumables and supported by a global network of providers who believe in our technology and in the outcomes of our treatments that are delivered every day to thousands of people around the world .
Speaker #3: Beauty Health Co is also well positioned to lead the skin health category , as we continue to see the market shifting towards a less invasive , increasingly personalized and more science backed procedures and treatments .
Speaker #3: I say , well positioned because if we look across the landscape every few , very few companies are capturing the recurring economics behind procedure volumes .
Speaker #3: And this is where Beauty Health Co apart , because we participate on both sides of the equation . The capital equipment and consumables , which creates a self-reinforcing flywheel of predictable and profitable revenue .
Speaker #3: So since I joined Beauty Health a month ago , I've been very impressed by the passion and the commitment of our teams around the world and by the loyalty of our customers and providers .
Speaker #3: But as we all know , passion alone does not create shareholder value . So we need to make sure that this passion is harnessed with a clear strategy and operational excellence .
Speaker #3: And the consistent top line growth and financial performance . So we are going to go and overindex our capital and attention in four different areas .
Speaker #3: First, our priority will be protecting and growing our Hydrafacial installed base of over 35,000 devices worldwide. Because we know that for every device we place, that will drive years of high-margin consumable growth.
Speaker #3: Second , we will focus on driving consumable utilization . This is the engine behind our profitability . Consumer consumables generate strong gross margins .
Speaker #3: So increasing device to consumable efficiency and usage across the installed base needs to . Absolutely be a key focus area for us . Thirdly , we must keep innovating across both devices and consumable platforms , and we will do that by bringing to market superior clinical back products that meet our providers needs and deliver the desired results for our customers .
Speaker #3: And fourth , we will continue to strengthen our operational discipline around commercial execution , cost control , margin expansion , supply chain and quality .
Speaker #3: And this is an area where we already have done very good work , and we will continue to focus on . So now turning to our third quarter results for Q3 .
Speaker #3: Total net sales were $70.7 million , down 10.3% year over year , slightly ahead of the high end of our forecast for the quarter in our device segment .
Speaker #3: Q3 revenues were $20.8 million , a decrease of 24.6% year over year , primarily reflecting continued pressure on equipment sales globally and the impact of the China transition to a distributor partner .
Speaker #3: Looking at our consumables segment , Q3 revenues were $49.8 million , a decrease of 2.6% year over year , primarily reflecting the change in the channel business model .
Speaker #3: If we net out the China impact Consumables , sales will have actually increased modestly versus last year . So as a result , our consumable mix moved from 65% of net sales in Q3 of last year to 71% this quarter .
Speaker #3: Now , looking from a portfolio perspective , we continue to deliver on our new product launches , hydro Ha and hydrophilic with Pep nine boosters together contributed to 14% growth in the booster sales category this quarter .
Speaker #3: We also achieved significant milestone in operations we are holding inventory below $60 million , which is the lowest in three years . And this is the result of the work the team has done to improve demand planning , forecasting and production quality .
Speaker #3: In terms of Q3 adjusted gross margins , we landed at 68% , a decline of approximately 150 bits from Q3 of last year .
Speaker #3: And this was driven primarily by lower average selling prices . As our distributor markets held a larger unit share of the overall equipment revenue year over year .
Speaker #3: Looking at an adjusted EBITDA , that was $8.9 million , up 11% from Q3 of last year , and reflects a tight control of cost and a solid operational execution .
Speaker #3: Now , looking ahead , we are confident in our outlook of raising adjusted EBITDA guidance for the remainder of the year , as well as the midpoint of our full year revenue guidance , and that is because we are encouraged by the momentum we are building as we enter 2026 .
Speaker #3: So with that , I'll turn the call over to Mike to walk you through our third quarter results in more detail .
Speaker #4: Thank you . Pedro , and good afternoon , everyone . I'm pleased to share another quarter of steady execution and disciplined financial performance in which we once again exceeded our initial expectations .
Speaker #4: Our team , across all functions , continues to work tremendously hard to support our providers and drive shareholder value as expected , revenue declined year over year , primarily due to device sale pressure .
Speaker #4: However , we delivered strong margins and profitability , reflecting the continued benefits of operational discipline and cost management . For the third quarter , net sales were 70.7 million , compared to 78.8 million in the prior year , primarily reflecting lower device sales , which declined 24.6% to 20.8 million .
Speaker #4: Consistent with the macro environment . Overall consumable sales declined 2.6% to 49.8 million as international gains were offset by softer US trends . The decline includes lower consumable sales due to our transition from a direct seller to a distributor model in China , excluding China , consumable sales would have increased modestly year over year .
Speaker #4: Price increases were partially offset by lower volume from a regional perspective , revenue in the Americas declined by 7% to 48.3 million , APAC revenue decreased 41.5% to 6.3 million , while revenue across EMEA was relatively flat at 16.1 million .
Speaker #4: The decline in APAC reflects our planned go-to-market transition in China, where we have shifted from a direct to a distributor model.
Speaker #4: As part of this change , we pre-positioned sufficient capital equipment inventory in China to meet anticipated demand through year end , minimizing tariff exposure on devices .
Speaker #4: Our global footprint continues to expand , which adds to the recurring consumables revenue stream . In the third quarter , we sold 875 total units worldwide at an average selling price of approximately $23,794 .
Speaker #4: As of September 30th , 2025 . Total active machines in the field increased to 35,409 units , versus 34,162 units at the end of Q3 2024 .
Speaker #4: GAAP gross profit increased 12.3% to 45.6 million , resulting in a GAAP gross margin of 64.6% . Adjusted gross margin came in at 68% .
Speaker #4: The GAAP margin improvement was driven primarily by lower inventory write offs and a mix shift towards higher margin consumables . Revenue . Q3 2024 includes charges from our China manufacturing exit and our retail specific perk write offs .
Speaker #4: We have maintained tight control over expenses this quarter , as sales and marketing spending was below our plan , reflecting lower headcount and disciplined spend management .
Speaker #4: Total operating expenses for the third quarter decreased by 16.5% to 51.9 million . As we continue to manage our expenses , selling and marketing expenses were 20.9 million , compared to 27.6 million last year , a decrease of 6.7 million , or 24.2% year over year .
Speaker #4: The decline was primarily due to lower headcount and targeted spending . R&D expenses were 1.7 million , compared to 1.1 million last year , an increase of 0.6 million , or 53.2% year over year .
Speaker #4: The increase was primarily driven by higher other professional service expenses related to early stage future product investments . G&A expense was 29.3 million , down from 33.4 million in the prior year , a reduction of 4.2 million , or 12.5% , year over year , driven by lower headcount and bad debt recovery , partially offset by higher legal and incentive related costs .
Speaker #4: These results led to an operating loss of 6.2 million in Q3 2025 . A significant improvement versus a loss of 21.5 million in the comparable prior year .
Speaker #4: Adjusted EBITDA was 8.9 million , up from 8.1 million in Q3 last year , with adjusted EBITDA margin improving approximately 240 basis points to 12.6% .
Speaker #4: The increase reflects continued cost control even in the face of lower top line volume . Moving to the balance sheet , we ended the quarter with 219.4 million in cash and equivalents , compared to 370.1 million at year end 2024 .
Speaker #4: The change primarily reflects the completion of our convertible note exchange , under which we repurchased approximately 20 million of principal and exchange for hundred and 13 million of our 2026 notes for a mix of cash and 250 million of new , 7.95% secured notes due 2028 .
Speaker #4: This transaction significantly extended our debt maturity profile and enhanced our long-term financial flexibility. Cash used for refinancing activities was partially offset by cash flows from operations, reflecting a strong improvement over the break.
Speaker #4: Even position in the prior year . Inventory declined to 56.1 million , down from 69.1 million at year end , reflecting stronger demand planning and improved supply chain efficiency .
Speaker #4: We also continue to make progress selling through our elite fair market value devices , with 131 units remaining , which we expect to sell by year end as previously noted , our US based manufacturing footprint is fully operational and remains a strategic advantage , enhancing product quality , increasing agility , and mitigating domestic tariff exposure .
Speaker #4: Given our performance through the first nine months and our visibility into year end , we are raising the low end of our full year 2025 revenue guidance to between 293 million and 300 million , and increasing our adjusted EBITDA guidance to between 37,000,039 million for Q4 , we expect net sales between 74.5 million and 81.5 million and adjusted EBITDA between 6.9 million and 8.9 million .
Speaker #4: The midpoint of this guidance reflects reduced year-over-year revenue declines and continued cost management discipline. Now, I'll turn the call back over to Pedro for final comments.
Speaker #3: Thanks , Mike . So to close , it's important to highlight that we are operating in a tough and still unpredictable environment where inflation remains an issue .
Speaker #3: Access to financing continues to be a challenging for capital equipment purchases and consumer confidence continues to be uneven , especially in the discretionary categories where Beauty Health Co operates .
Speaker #3: But despite the macroeconomic backdrop , we will continue to prioritize and lean into towards the levers within our control that will drive device footprint expansion and repeat consumer treatments , all with the objective to keep building the Hydrafacial global brand , accelerating our revenue growth and profitability , and position Beauty Health Co firmly as the leader in the global medical Aesthetics market .
Speaker #3: So with that , I'll turn the call over for questions .
Speaker #1: Thank you . We will now begin the question and answer session . To ask a question , you may press star then one on your touchtone phone .
Speaker #1: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star .
Speaker #1: Then two . At this time we will pause momentarily to assemble our roster . The first question comes from Oliver Chen with TD Cowan .
Speaker #1: Please go ahead .
Speaker #5: Hi , Pedro and Mike . I'm encouraging on the guidance . I would love your thoughts on what's happening in Americas . And also the the more cautious trends you cited in Americas .
Speaker #5: How you weighed that against the guidance you gave also to to help us compare and contrast a little bit about Americas relative to to EMEA being flat .
Speaker #5: Thanks a lot .
Speaker #3: Sure . Oliver . So if you look at the regional dynamics of our business , it's kind of a mixed picture . But I believe we're trending in the right direction here .
Speaker #3: So just to look at the Americas , which by the way , it's our largest business , 65% of our total revenue comes from that .
Speaker #3: Overall , yes . The Americas was down 7% out of that devices was was down 16.3% . And that the explanation for that and the driver for that was the lower device placements .
Speaker #3: And because of the macro pressures that are currently affecting the country . But despite being a decrease , Q3 was was less than the previous two quarters .
Speaker #3: So you saw , you know , an average of 20% decrease in the prior two quarters of the year . We believe that we are seeing some stabilization here in terms of devices for for the Americas .
Speaker #3: Consumables a little bit of a different mix . We were down about 2.7% , and that was driven by a combination of , again , consumer spending , some headwinds there coupled with lower device placements that we had in the first half of the year .
Speaker #3: But if we look our booster sales have increased . So that's kind of the picture of the Americas . If you want to contrast that with what's happening in EMEA , it's a little bit of the same narrative .
Speaker #3: 25% of the total sales comes from that region . But overall we were flat and we were flat because of a mix of different performance .
Speaker #3: We have strong momentum in Germany , strong momentum in the medical channel . But again , devices were down in EMEA , about 21% .
Speaker #3: And and again , very similar challenges . The US with the consumer confidence being generally lower than a year ago . And with the added factor that in EMEA we have a little bit more of a crowded space .
Speaker #3: There . So the local teams are very focused on training and education , on the benefits of facial versus other treatments , and that's but that's taken in effect .
Speaker #3: If you look at the consumables on EMEA , we continue actually to perform well . This is a bright spot . It has been a bright spot for us .
Speaker #3: It definitely a bright spot for the quarter . We we grew there double digits about 10% . And that was driven by very strong performance in Germany .
Speaker #3: And again from the medical channel, then we have a small portion of APAC, which is about 10% of our total sales.
Speaker #3: And which has been down substantially due to the China transition to a distributor market, with both devices and consumables being down.
Speaker #5: Thanks , Pedro . Very helpful . And then one broader question . As you mentioned , the four focus areas , which ones were going to be more near term in terms of what you're seeing in your hypothesis and which ones may be longer term .
Speaker #5: And as you mentioned , the skin health technology ecosystem , how do you envision that or how would you frame that in terms of device platforms , digital diagnostics or partnerships , as you think more broadly ?
Speaker #5: Thanks a lot .
Speaker #3: Yeah , sure . So the way we kind of looking at the business , there's a broader there's a broader , broader plan of strategy that is overarching for the whole company .
Speaker #3: And then we will definitely have a more surgical strategy for our device business . And consumable business . But and definitely over time , I'll share much more in how we're shaping this future strategic roadmap as we go along .
Speaker #3: But but my initial observation is that our our competitive advantage really relies on our core value proposition . We need to keep driving utilization .
Speaker #3: We need to keep driving device placement . And this is because we all know that for every device that we replace that drives multi-year consumable revenues , after that , on the tail .
Speaker #3: So then our job after that is just to make sure that we are capturing the long tail of recovering customers . The consumables we we need to to focus on innovation .
Speaker #3: And that's and that's going to be a play across both devices and consumable platforms . And so the intent is to continue to launch superior and and most importantly , clinically backed products that that meets our provider needs .
Speaker #3: Execution has been a very bright spot in the prior quarters . We we will continue definitely tying up the execution performance , continue to drive commercial excellence around our business with better targeting and lead conversion and and as with every business , we'll we'll keep a close eye on capital efficiency , making sure that every dollar is invested or , you know , driving profitable revenue or in margin improvements and and then if you look more specific into what we're planning to do for devices , again , I'll definitely share more more about my thinking here .
Speaker #3: But we have to attack this problem from a multiple multitude of angles here . First , we have to address the providers financing challenges .
Speaker #3: That has to be has been definitely a gating item for us in in the prior quarters , and we have to do that with , with , with smarter and more targeted pricing strategies and and secondly , as you as you guys remember , we rolled out the good , better , best program , which basically gives customers more flexibility in terms of price points across our portfolio of of of elite and Allegro .
Speaker #3: And that is definitely helping . Now , the consumers navigate the macro better and and also on devices we have to be reinforcing constantly the commercial discipline around targeting , segmentation and and conversion .
Speaker #3: And the team is doing a great job there different a little bit of a different strategy that we're going to be exploring is going to go on the consumable side , because that's where we're going to really lean in on the innovation .
Speaker #3: And and that's kind of the that's the formula that has been working for us . And we've done going to do that by launching differentiated boosters with clinical , real clinical proof .
Speaker #3: There . And and we're going to continue to equip our providers with , with , with marketing tools that that are relevant , that are impactful .
Speaker #3: And and we're going to continue to invest in education because that's kind of that's the gating item that that will move the needle post sales onboarding .
Speaker #3: Very important . We have to continue to overindex on those making sure that every provider knows and how to maximize the return on investment of every machine that they they commit to .
Speaker #3: And , and consumer mindshare . This is , in the end , boosters , serums , they need they need the inbound traffic to happen .
Speaker #3: So we'll definitely have to be be invested in in driving that consumer mindshare . So overall , still very high level . But this is kind of the key areas I personally and the team are very focused on .
Speaker #5: Thanks a lot, Pedro.
Speaker #1: Thank you . Pardon me ladies and gentlemen . You are requested to limit your questions to two per participant . Thank you . The next question comes from JP William with Roth Capital Partners .
Speaker #1: Please go ahead .
Speaker #6: Great . Hey , Pedro . Hey , Mike . Thanks for taking my question here . You know , Pedro , maybe if we could start with you as you kind of get your hands wrapped around the business a little bit more and get a better understanding , is there anything else you can share about the sort of international strategy and sort of where you feel makes the most sense to have direct first distributor models ?
Speaker #3: Definitely . Thanks , George . Thanks for the question . We are a global company , so if you want to grow , which is the intent we have to address international markets as part of that formula .
Speaker #3: And so we have to obviously focus on that . And and have , in my view , very targeted commercial programs designed to fit the different regions , economics that in where our products are present .
Speaker #3: We have been historically leading into a an extensive distributed network that has that is part of our DNA . And we will continue to do that in order to drive penetration and reach .
Speaker #3: That's part of our , you know , the way we go to market . And it has been quite a successful formula there .
Speaker #3: So we will definitely continue to do that . But at the same time , we need to make sure that we invest in in education and training as we scale and help out the distributors increase their penetration in their respective markets .
Speaker #3: So that's kind of strategy , not not a big change over overall . It's still a small portion of our business . We intend to explore the opportunities of growth in different markets .
Speaker #3: Being those through direct direct channel of distributed channel , but definitely just to respond to your question , Jorge , definitely international has to be part of that equation for us .
Speaker #3: Being those through direct direct channel of distributed channel , but definitely just to respond to your question , Jorge , definitely international has to be part of that equation the
Speaker #6: quick follow up . I believe you took the pricing on the consumables side in July . Can you just talk about how the reception has been to that price increase and what it says about potential pricing power in the future ?
Speaker #6: On the consumable side ? Thank you guys .
Speaker #3: No . No problem . So the team has been very pleased how the market and not only digested , but actually took that price increase , which was was was triggered around the summer of this year .
Speaker #3: So ASPs for you look at consumers ASP is up and that is and that is the reason why . Because of the price , the 5% price increase that we drove and and another thing that we are seeing is that the the boosters , the , you know , are driving that ASP also up for us .
Speaker #3: So overall for our consumable category , ASP overall on average is up , which is a good thing .
Speaker #6: Thanks . Best of luck .
Speaker #1: The next question comes from Susan Anderson with Canaccord . Please go ahead .
Speaker #7: Hi . Good evening . Thanks for taking my questions , Pedro . I'd love to hear maybe just kind of your thoughts on stabilizing the systems .
Speaker #7: I mean , it looks like they're already stabilizing , but what initiatives do you think to . You need to put in place to get those to grow again ?
Speaker #3: Sure . Susan . So let me just anchor on our quarter performance . I think that's probably best as we start discussing , you know , how we're doing with devices .
Speaker #3: So for the quarter , you know , devices were down . Devices represent about 30% of our total revenue . And by the way , Qingdao represents 70% of of total device placements .
Speaker #3: So a big chunk there on our new platform . They are declining . Indeed . And and we feel that this is a direct indirect correlation to the economic environment that we live in , which translates into a tighter landing environment as well .
Speaker #3: But at the same time , we look at how we are expanding the footprint of our devices globally . And and actually we look at Q3 and we sold an extra 875 units .
Speaker #3: So we continue to expand that footprint . We continue to broaden our reach . And that is definitely good news for us . Now we understand that the keep coming down and have been coming down for some quarters and but what we are encouraged to see is that that those numbers are stabilizing .
Speaker #3: We are coming off, rather, out of easier comps. More and more, our lead pipeline is improving, and our field teams are getting more disciplined about lead conversion.
Speaker #3: So , you know , if I look at , you know , in the future , definitely expect this trend to continue as as the financial financing access improves and and the sales teams executing better .
Speaker #3: So the , you know , a look at devices and specifically the performance of our ability to to sell devices into the market to get better and better as , as the quarters progress and the and the comps get easier and we do a better job in commercial execution .
Speaker #7: Okay , great . And then if I could just add one follow up on the consumables front , I guess , just curious , your thoughts around , you know , I guess I think Mara mala was recreate or , you know , creating some products , not just necessarily for treatment , such as boosters , but also for use , maybe during treatment or , you know , for purchase in front of the spa .
Speaker #7: I guess . Just curious on your thoughts around consumables area and kind of where you're going to be focused at . Thanks .
Speaker #3: Yeah , absolutely . So we have decided to actually pause the skincare initiative and and that decision was was a deliberate strategic decision .
Speaker #3: My opinion is that our competitive advantage lies rather on the on the clinical differentiation , on on recurring consumables , on stronger provider partnerships .
Speaker #3: And that's where we generate long term value . So after reviewing the business case , we we basically concluded that skincare will pull us away , we'll pull us away from our core business model and which which , by the way , it's a business model that provides us with a very strong competitive advantage .
Speaker #3: So we have decided to instead focus our capital rather on on things that are core to our business . Instead of of of into ventures where we have no expertise or , or actually no right to win as we make that decision , we also look at the potential impact on on the revenue and , and so actually the project was pre-revenue .
Speaker #3: So we will and on top of that , we will have to require it will have to require heavily invested investment before we could scale up .
Speaker #3: So by not pursuing the skincare initiative , we actually preserve capital , which indeed will absolutely help us in our near profitability profile .
Speaker #7: Okay , great . Thanks for all the details . Really helpful .
Speaker #1: The next question comes from Olivia Tong with Raymond James . Please go ahead .
Speaker #8: Good evening , Mrs. Lillian on for Olivia . I'm wondering if you could talk through the trends you're seeing in different channels and then also any color on what you're seeing from an end consumer standpoint and whether you've noticed any incremental weakness as macros remain pretty choppy .
Speaker #3: Yeah . So , Olivia , as you know , we divide our consumable business between the medical and the non-medical segments . So medical just for reference , that includes your med spa , your dermatologists , your plastic surgeons .
Speaker #3: And that's that segment itself represents about 70% of our providers in the US . This is just the US with the largest segment being about two thirds being med spa , which by the way , is the channel that keeps the market growing overall .
Speaker #3: Well , the plastic surgeons , from what we understand , are experiencing some slowdown because basically consumers now are prioritizing less invasive , less , less invasive care .
Speaker #3: So and then you have on the other side , the non-medical segment . And that includes the day spa and the single room estheticians and and here , you know , we are seeing , you know , stable , stable progression there as well .
Speaker #3: But basically the US and EMEA has the largest portion of the medical side and medical spa and but with all the challenges that they are facing in the macroeconomic realm , that is impacting their business , the bright spot here is Germany as I think I mentioned before .
Speaker #3: And and on the consumable medical channel . So but overall , we still believe there is growth opportunity in both of these segments or channels .
Speaker #3: Both the medical and the non-medical and and our job from now on is to make sure that we design products and have the right pricing strategy in positioning to capture the opportunity in both of these segments .
Speaker #3: Hey , Mike , do you want to you want to chime in ?
Speaker #4: I just wanted to add about the the end consumer piece . You know , one of the things we saw during the quarter were booster attachment rates were , were were very high .
Speaker #4: They've been a real bright spot in the in the business . And that can really highlight the impact of the innovation that we've been investing in over the last year .
Speaker #4: So you look at a year ago , the company launched Hydrolock , and then in the second quarter we launched hydrophilic , and they've had a real positive impact on the on the overall business utilization rates on our install base .
Speaker #4: We've seen a little pressure , you know , highlighting that the end consumer who's coming in for just a normal hydrafacial without electing kind of boosters , has been under a bit of pressure .
Speaker #4: And so we've really focused on the sales and training aspect of the business to sure there's outreach there . We're leaning into education to make sure our providers are equipped with the tools they need to , you know , communicate the benefits most effectively around the Hydrafacial treatment .
Speaker #4: make
Speaker #8: Okay , great . Thank you . I'll pass it on .
Speaker #1: The next question comes from Alan Gong with JP Morgan . Please go ahead .
Speaker #9: Thanks for the question . I guess starting just with a broader
Speaker #9: strategy question . This has been , you know , a reset year for beauty , health . You know , you are hopefully stabilizing .
Speaker #9: And this will be a nice baseline for you to grow off of going forwards . So when I think about the outlook for 2026 , how should I think about how you're going to prioritize top line growth versus profitability and diving deeper into existing accounts and focusing more on consumables versus trying to drive a re-acceleration and delivery systems .
Speaker #3: We actually going to be focusing on all of those lines . You have to bring top line revenue growth to this business . We can definitely flex our spend and we the team has been doing that for some time very successfully increasing our gross margins as well .
Speaker #3: And which translates into an expanded profitability in the inhibitor. But if the top line is not there, we're always going to find ourselves behind the eight ball.
Speaker #3: So our total focus will be to drive that top line . We have a very strong business model that keeps delivering recurring revenue .
Speaker #3: The team has to be focusing on that for sure. In terms of, you know, next year, in the way we are looking at.
Speaker #3: And I'm not going to provide any guidance because I think it's a little bit premature to start talking about specifics about about 2026 .
Speaker #3: We will actually share more detail commentary on our next on on our next call . But , you know , we feel good .
Speaker #3: We feel good about the setup . We're coming from two consecutive quarters of of good progress , which basically gives us a strong base heading into next year .
Speaker #3: And but again , and I think it transpires throughout the call , this momentum that we feel strong about will depend on several factors kicking in .
Speaker #3: And first , first and foremost , the market that we are participating is still under some pressure versus prior years . And and I think that we're going to be definitely continue to see some lumpiness in the near term .
Speaker #3: Overall consumer spending again is still a big rating , limiting factor for us . And so we're going to keep a keep an eye on that as well .
Speaker #3: But but you know , looking at next year if the macro conditions improve even slightly and if our device momentum improves , which will be the focus of the team , then we we can expect operating leverage and and further expansion on our , on on our bottom EBITDA .
Speaker #3: So where we stand , yeah , I think we have the the elements that we need in going into next year in , in with a good momentum .
Speaker #1: Does that answer your question ? We'll move on to the next question . Is from the line of John Block with Stifel . Please go ahead .
Speaker #10: Hey everyone , it's Joe Federico on for John . Thanks for taking the question . So maybe to start and Mike , this might be more for you , but just to flush through some of the updated guidance dynamics , revenue expectations I think came up by 4 million at the midpoint .
Speaker #10: And EBITDA came up by 7 million . So a decent clip more . Can you just maybe walk us through some of the moving parts ?
Speaker #10: More specifically as to why there's so much more of a drop through on the incremental sales ? I know , you know , gross margin outperformed in the quarter .
Speaker #10: So, is that just sustainable in the coming quarters? Any additional color would be helpful?
Speaker #4: Sure . A big portion of the fall through was happened in Q3 . Joe , as well . So we obviously exceeded kind of the midpoint of our expectations on on Q3 .
Speaker #4: I think the midpoint of our original guide was around 3 million . And we obviously came in well above that . So that's a piece .
Speaker #4: But when you look to your point around adjusted gross margins , as I think about kind of Q4 seasonally , those margins tend to be a little bit lower quarter over quarter because we run the consumables promotion in the fourth quarter .
Speaker #4: The Black Friday , Cyber Monday promotions . So I would think about gross margins in the fourth quarter coming in more similar to the second quarter versus the third .
Speaker #4: And then opex . It tends I would expect it to go up quarter over quarter , about 2 to 3 million versus Q3 .
Speaker #4: And that's primarily due to higher commission dollars because sales growing and marketing spending associated with that . So the key themes those are the financial , the key themes , Pedro touched on are , you know , we're seeing while we're devices still continue to be under pressure .
Speaker #4: It's a lot less as we've moved throughout the year and really executed on the . Sales initiatives that we've had and introduced , kind of the good , better , best .
Speaker #4: And we've also put together different pricing , portfolio bundles for Sunday that we've started to see some success with . So our expectation behind the guidance is that you'll continue to see those trends improve through the fourth quarter .
Speaker #10: Okay . Got it . That's that's really helpful . And then maybe just quick follow up . We're calculating that churn in the quarter was just under 2% , which is a modest improvement compared with last quarter .
Speaker #10: But it's still pretty elevated compared to the last 7 or 8 quarters . Call it I know you had planned actions to moderate that .
Speaker #10: You know , in the back half of this year , maybe just how are some of those progressing or starting to see them moderate more in for Q to date , just your latest thoughts there .
Speaker #3: Yeah . So I'll take that . Joe . Definitely . You know , churn is definitely higher than usual , but 1.8% versus think about 0.9% of last year .
Speaker #3: And we look , you know , we we we're looking at this very seriously . We believe the causes could be actually multifactorial .
Speaker #3: And then our data points and the team is still running a lot of analysis here . But our data points point data points to financial pressure being the primary factor .
Speaker #3: And and driven . And this is driven by by the economic challenges on the low volume small providers . That or are closing down simply they closing their doors or they have a higher staff turnover .
Speaker #3: And that comes with less consistent device utilization . And and so I believe or we believe rather than this factors are the main culprits behind the churn that we just saw this past quarter .
Speaker #3: Now , what are we doing about it ? Actually , you know , there's ways there's ways you can you can you can see this , you can see this as a loss or you can see this as an opportunity .
Speaker #3: And we rather are looking at this as a . Reactivation opportunity . And we're taking a very proactive stand in , in reengaging this , particularly this low volume providers .
Speaker #3: And we're going to go we are going in and offering more support and , and , and improving our training to them . And so the goal that the team has is to bring this churn numbers back to what we think are the historical levels over , and we'll do that over the next few quarters .
Speaker #10: That's that's really helpful . Thanks again .
Speaker #1: Thank you . That was the last question . This concludes our question and answer session . The conference has now concluded . Thank you for attending today's presentation .
Speaker #1: You may now disconnect . Thank you .