AirSculpt Technologies Inc (AIRS) 2022 Q2 法說會逐字稿

Good morning, and welcome to AirSculpt Technologies Second Quarter 2022 Earnings Conference Call. (Operator Instructions)

At this time, I'd like to turn the conference over to Dennis Dean, Chief Financial Officer at AirSculpt Technologies. Thank you. You may begin.

Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies results for the second quarter. Joining me on the call today is our Founder and Chief Executive Officer, Dr. Aaron Rollins; and our Chief Operating Officer, Ron Zelhof. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risk and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website at investors.elitebodysculpture.com.

We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they are more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recently quarterly report when filed, which will also be available on our website.

Now I'm going to turn the call over to Dr. Rollins.

Thank you, Dennis. Good morning and thank you all for joining us today. I'm happy to say once again, the second quarter saw us reach the highest quarterly volume and revenue ever achieved in our history. For the quarter, we generated $49.7 million of revenue, reflecting a growth of 42% over the prior year quarter. During the quarter, we reached an extending milestone, performing over 30,000 AirSculpt cases since our founding a decade ago. We take immense pride in improving the lives of our patients, while providing excellent care. Previously, we announced a health research study we are undertaking on the effects of procedures have on a patient's metabolic parameters.

Recently, we submitted our study to the Institutional Review Board for approval. Once we receive final approval from the IRB, we will begin enrolling patients, which we expect to occur later this year and we will still anticipate having results for the study in 2023. We also recently opened our Boston Center and expect to open Philadelphia later in the third quarter and we expect our first international site in Toronto to open later this year, once we receive final government approvals.

As we have said on previous calls, we believe there is great opportunity to further expand our network of centers internationally, while still maintaining our growth domestically. We are excited about the vast number of opportunities out in front of us and we look forward to capitalizing on these opportunities, as we continue to deliver exceptional results to our patients. We also remain committed to building out our team to support our rapid growth. We have been heavily focused on our clinical and operations infrastructure to manage our growth domestically and as we expand our global presence.

Before I turn the call over to Ron, I want to also comment on the special dividend we are announcing this morning. We believe this dividend provides a meaningful cash return to our shareholders and underscores our confidence in the business and our balance sheet as we are funding the dividend with excess cash from our balance sheet, so this will not impact our gross leverage. Ron?

Thank you, Dr. Rollins and Good morning, everyone. I'm going to provide you with a development update regarding our de novo activity and procedure room expansion projects. As previously reported, our center in Las Vegas opened in March of this year and we opened our newest location in Boston during the month of July. We have now opened four centers in the past seven months, which demonstrates our ability to execute on our de novo strategy at a rapid pace and each center is performing well. We expect our center in Philadelphia to become operational in September and our Toronto location later in the fourth quarter, once we finalize regulatory approval.

We have also secured space in Austin, Texas and Irvine, California, which will likely be our next domestic sites. We anticipate these centers to open in the first half of 2023 and we are diligently working on accelerating our new center opening for the rest of 2023 and 2024. We look forward to sharing more about those markets in the coming months. We have a desire to grow at even a faster pace, but our top priority is to maintain exceptional quality and safety for our patients.

As Dr. Rollins mentioned, we continue making investments in our support team so that we can accelerate our growth plans. Finally, I am pleased to announce that we have now completed our procedure room expansion projects on existing centers. All of our centers now have at least two procedure rooms and at three locations have three procedure rooms. It has been a busy first half of the year and these expansions along with the new center opening puts us on a great path for continued growth.

With that, I'll turn it back over to Dennis to provide additional detail on our financial results. Dennis?

Thanks, Ron. First, I want to comment on the confidence we have and the strength of our business and our ability to sustain long-term growth. We continue to focus on making investments that are essential to our growth initiatives, while also delivering exceptional return on capital. During the quarter, our revenue increased $14.7 million to $49.7 million, a 42% increase from the prior year quarter and our cases increased 22.5% to 3,691. The increase is primarily a result of adding four de novo centers over the prior year quarter, which expanded our footprint to 19 centers as of June 30, 2022.

Our revenue per case was 13,453, a 16% increase from the prior year quarter. We continue to be pleased with our average revenue per case increases, which are due to patients continuing to have more areas treated at once. Our same-center revenue increased approximately 20% over the prior period, comprise of a volume increase of approximately 5% and revenue per case increase of 15%. Our same-store growth can be attributed to favorable trends in the aesthetic space and to expanding our marketing and selling capabilities to increase brand awareness and attract more patients into our centers.

Our cost of service as a percentage of revenue was 35.2% versus 32.1% in the same period last year. As we mentioned on previous calls, we have been making clinical staffing additions to proactively prepare for accelerating our growth plans and as expected, we began to leverage some of those investments during the second quarter as our nursing cost as a percentage of revenue declined 100 basis points compared to the first quarter of 2022.

As Ron mentioned in his remarks, we have opened four de novos in the past seven months, which negatively impact our margins in the quarter by approximately 80 basis points. This is an improvement from the 130 basis point impact reported in the first quarter and we anticipate margins will continue to improve as the de novos ramp up in case volume. Our total customer acquisition cost for the quarter was approximately $2,000 per customer and as expected was down sequentially from $2,200 per customer in the first quarter of 2022.

Our adjusted EBITDA was $15.2 million for the quarter, adjusted EBITDA included approximately $1.9 million of public company-related costs, which did not exist in the prior year quarter as we were a private company. Normalizing the prior year to include these public company costs, our adjusted EBITDA growth rate would have been approximately 24% and adjusted EBITDA margin for the second quarter was 30.7%, which represents a sequential increase of 590 basis points from the first quarter of 2022.

Moving on to liquidity. Our cash position as of June 30th was $35.3 million and our $5 million revolver remains undrawn. Our long-term debt was approximately $83 million and our leverage ratio at the end of the quarter as calculated under our credit agreement was 1.6x. Cash flow from operations for the quarter amounted to $10.4 million, which reflects approximately 68% adjusted EBITDA to cash conversion.

As a reminder, we carry no accounts receivable as we receive 100% payment upfront and our cost structure is highly variable as our surgeons receive payment only after a surgery has performed. We invested $1.9 million during the quarter, primarily related to opening our center in Boston and our upcoming opening in Philadelphia, as well as our procedure room expansion projects. We are reiterating our revenue guidance range of $175 million to $179 million for the full year, which represents a 31% to 34% increase over 2021 levels.

In addition, we are maintaining our adjusted EBITDA outlook of $58 million to $60 million. Finally, as we announced in this morning's release, our Board has approved a special dividend of $0.41 per share to be paid to shareholders of record as of August 26, 2022, with a payment date of September 14, 2022. We believe this special dividend demonstrates our confidence in the growth of our business due to our ability to deliver excellent free cash flow and the modest cost of opening new centers, this special dividend will not compromise our ability to deliver significant growth in the future, while allowing us to provide cash return to our shareholders by using excess cash from operations without increasing our gross leverage.

With that, I'll turn the call over to the operator for a few questions. Operator?

(Operator Instructions) Thank you. Our first question comes from the line of Joshua Raskin with Nephron Research.

I think last quarter, you had suggested revenues would be kind of in that mid-40s range for the second quarter, always a sequentially or a seasonal strong quarter, but obviously, a lot of upside in the quarter. So I'm curious if you could just sort of talk to some of the upside and some of the drivers for that. And then as I think about guidance, it doesn't look like you're assuming much of that flows through the second half. So maybe other than conservatism, is there anything we should be thinking about, about potential headwinds for the second half?

Thanks very much, it's Aaron Rollins. We are giving specific quarterly outlook and we really are just reiterating our full guidance on both revenue and EBITDA. We remain very excited about the business and de novos are coming online and ramping up for expectations.

Josh, this is Dennis and I wanted to just add to that too. We also -- we had some improvement in our rate during the quarter as well. And as we've talked about, our rate can bounce around from quarter-to-quarter based on the areas our patients get treated and things of that nature. So we had some improvement there sequentially that also kind of helped lift up the revenue number for the quarter.

Got you. And then just a quick follow-up, did you guys think about share buybacks instead of the special dividend? And maybe what makes the dividend the most attractive option to return to shareholders?

Yes, Josh, I mean, we looked at a couple of different options for us. We felt the dividend was the best thing for us for this time period. We don't have a significant amount of public float as it relates to that. We did consider the buyback option, we just did think that was the best option at this point. It may be something we look at in the future depending on where things shake out, but we felt like the dividend was something to demonstrate our confidence in the business, our ability to generate a significant amount of free cash flow. And again, we're very excited we can do without putting any additional debt on the balance sheet.

Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler.

Congrats on the quarter. So I'd like to push you a little bit more on that previous question there on the back half of the year. Now that we're a little bit farther into third -- Q3, is there any insights you can provide on how demand has been trending? I know there's been a lot of talk, given the inflationary impact on consumers and how that may impact demand? Is there just any color you can provide on how you're thinking about that for AirSculpt for the back half of the year?

Korinne, I mean, again, we're -- without giving quarterly type guidance, reiterating our revenue numbers for the outlook is something we're very confident in. Obviously, the Q2 was very strong for us and we feel really good about where we are.

I'd like to add that we get patients from multiple income brackets, but our marketing strategy is geared toward the upper middle class and above and they tend to be more resilient to challenging economic conditions.

That's helpful. And then just as we start thinking about bringing on more and more centers come 2023 and now that you're finishing up some of your adding on additional centers or additional room to existing centers now that, that's over with. How should we be thinking about the cadence of door openings going forward? Are we still targeting like 3 to 4? And then kind of related on the Toronto facility, is there any risk of not receiving government approval for Toronto? Or what is the process there?

Korinne, it's Ron. On your first question, as I said in the remarks earlier, we look forward to and we want to go ahead and increase our openings. However, our guidance is still sitting at 3 to 4. As we mentioned, we've done basically 8 this year with the 4, as well as expanding our procedure rooms from one to multiple rooms this year as well. So we're set up for it. We know everybody wants and that's what we're shooting for.

In terms of Toronto, there's no risk. It's just a timing issue at this point.

Our next question comes from the line of John Ransom with Raymond James.

If we look at the G&A and the revenue per procedure this quarter, Dennis, is that kind of how we should think about the balance of the year?

So on a G&A perspective, John, I think that's where we're -- we should sort of shake out the remainder of the year. Obviously, our marketing costs which may or may not be including that in there, if you're thinking about the total numbers. We've made significant investments in the first half of the year in our infrastructure teams and we've recently brought on one new executive in July that's going to be focusing on our -- the branding aspects of marketing. And so -- but for the most part, our G&A, we feel like we've gotten the majority of our support teams in place and expect to begin to leverage that even further as we move through this year, as well as into next for sure.

And then rev for procedure, anything to call out in the quarter or a reason I think that wouldn't continue through the year?

Well, we've talked about this on a number of quarters now that, that revenue per case number can bounce quite a bit depending on the patients that come in, what procedures they have performed, what areas and things of that nature. We feel like we're beginning to sort of max out to some degree in the revenue per case number, if the number were to drop down sub 13, it wouldn't necessarily shock us right now because, again, we're a pretty still small volume business. But as we continue to grow that footprint, that number is going to become more and more stable. But we are working on some things too internally about possibly some additional types of things in the future that we're -- that could potentially give us a little bit of impact on the revenue future.

And then just lastly from me and I'll get back in queue. Obviously, the market went crazy with recession concerns. Just remind us how far out your visibility is on your bookings?

So on our bookings, John, I mean we don't have a significant backlog in our procedure. One of the things that we really have focused on over the last 8 to 9 months is really getting patients scheduled quicker. One of the things that gave us backlog historically was that a significant number of our centers were single procedure room centers, those legacy facilities that Dr. Rollins started with. And those centers were the ones where we had what we would have considered backlogs that we didn't necessarily feel comfortable with. But now that we have -- every one of those now has been expanded, it allows us to get patients treated really quickly. So we never expect now a significant backlog because we'll -- as a center kind of gets to the point of a utilization that we think we need to begin to expand again, we'll do that as well.

Our next question comes from the line of Whit Mayo with SVB Securities.

When I look at the rate per case on the non-same-store centers, it's running pretty high, north of 14,000, is there anything unique about the new centers that's driving that? I just presume it's higher demand for the fat transfers, which presumably is good as we kind of think out over the next year, those roll into the same-store count. But just wondering if there's any learnings or early observations on the new center openings that you have anything that maybe surprised you, good or bad.

From a rate perspective, there's nothing that we would necessarily want to call out or that really surprises us one way or the other on the same-store group or the new center group. Again, those numbers can bounce again from quarter-to-quarter on a per case rate basis. But what I would say is, obviously, we're very pleased with where we are from a rate and we feel good about it.

Okay. I mean just any additional like observations as you just sort of reflect back on the recent centers that open where you say, wow, like we've really got this kind of figured out or like this kind of surprised that's just anything that surprised you one way or another?

No, not at all. They're all doing very well and we continue to be extremely excited at our openings right now. The newest ones on are going according to plan and it's been noticing the surprises.

Yes, I think it just kind of reiterates our confidence in all the markets that we go into, whether they be larger markets or mid-markets, they're all performing well.

I would say that as we do -- the more we do this, the better we get at it, the smoother it goes and the better -- the easier the ramp-up is I'd say.

And part of that is we're expanding our support team to help us...

Infrastructure...

As Ron said, to accelerate this -- the opportunities that are out in front of us.

And maybe just finally, the follow-up on that. You have accelerated some of those investments in the infrastructure, you sort of referenced in the last 6 months and you talked about higher G&A dentists, the new marketing had the new physician training person or recruiting whatever we're calling the title. But any success stories that you can talk about there? Any early returns that you believe you're seeing other than perhaps some of the performance of the new centers? Just anything else might be helpful. Thanks.

Yes, actually. So we have 2 surgeon full-time surgeon trainers, one is based on the West Coast and one is based on the East Coast. And then, we're doing a really good job with physician recruitment and because we are hiring so many doctors, both for existing centers that have expanded and for new centers, our needs for training are being met and we're able to train these doctors very well and thoroughly and get them going faster, more efficiently and honestly with better critical quality than we could before. So that's a big improvement since we've gone public.

I'd also like to add that in terms of our expansion of our legacy one-room centers, we had mentioned that it would be done by the end of the year and we've already completed -- we've already completed our expansion projects. So it's helped us there as well.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

Can I ask about utilization or center utilization, how it's performing, realized you've added capacity? And then do you have a sense of where that ceiling may be?

Right. Yes, normalized for the new centers and procedure rooms were approximately 45% right now. Just to give you the estimate, our full capacity is at 85%, Simeon. So that's where we stand right now. And again, from a procedure room count as of June 30, we were at 38 procedure rooms.

Okay. That's fair. I wanted to ask about the revenue per case. You mentioned it could be -- it could fluctuate, but we might be reaching some type of high point on it. I don't think we have the comparisons I think to last year. So we try to look at it on a stacked basis. One, I guess, is it accelerating? We don't see what the underlying trend is? And 2, that means the revenue per case component, we shouldn't assume much higher than what we hit this quarter going forward?

Yes. So Simeon, last year, we were -- second quarter, we were at $11,600 per case. Again, this quarter, we were at $13.4 million. We've talked a number of times how we really over the last year have gotten a lot of benefit we believe from AirSculpt TV and really educating the consumer to get more areas done at once. And so that's uplifted our rates. We're starting to kind of -- there's no exact science here. Some of it's a little bit of a feel as it relates to where we are. I mean, I'm not modeling significant increases on top of where we are right now. And again, I kind of use that range of upper 12s to mid-13s is a range to kind of look for. But again, a case isn't a case and so sometimes when your rate may go up, your volume may tick down just a little bit because you're spending more time with a patient in a procedure room and vice versa.

Our next question is a follow-up from John Ransom with Raymond James.

Hey, there. This is my favorite topic. As you expand your footprint and your resources improve, as we think about intermediate term, what does the marketing and customer acquisition look like six months a year from now, that may or may not be different from what you've done historically?

Thanks, I'll answer that. So as you know, we hired a Chief Marketing Officer/Branding Officer in July. And we're really excited about her. She's hit the ground running. We're down the road with 2 potential big celebrities. We're working really hard at getting a PR that's not celebrity focused. It's based on what we do and other forms of marketing that we'll be launching soon.

Right now, we have a strong return on our customer acquisition cost, with gross margin per case in excess of $8,000 per patient. So we're getting a 4x return on our CAC. And customer acquisition cost was down, so $2,000 down from $2,200. So I do think that customer acquisition costs, at least for the time being, while we gear up what I like to say other legs of the marketing table will fluctuate. It all depends right now on how many people are bidding for the same leads on Google, the more people that we're competing against the more it costs and vice versa.

And yes, I appreciate you including me in your celebrity, one of the 2, I need to return our call, so that's great. I'm just kidding, I'm kidding everybody, kidding. The second -- you talked in the past about some longer-term initiatives around storing stem cells and quantifying health benefit, so just an update on those would be great. Thank you.

Yes. Great. Well, we have started the stem cell initiative and it's just to allow patients to bank their stem cells if they wish and it's a wellness thing. It's not something we're trying to make money on. We want to provide the absolute best service possible to our patients and we think that's an important option to offer them. It's something that's being rolled out slowly and we really haven't made a verdict on whether or not we'll roll it out completely. It just depends on if patients want to do it or not.

On the metabolic study, we're proceeding according to the timing we set. We submitted the study to the IRB, we're waiting for final approval. We expect to enroll patients later this year, likely in the fall with results expected in 2023. And that's what we've talked about thus far.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Dr. Rollins for closing comments.

I just want to thank everyone for listening to the call today and I want to thank my incredible team that is performing so well. And I can't tell you how proud I am to offer this special dividend. We remain incredibly focused on shareholder value and building this business. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.