AirSculpt Technologies Inc (AIRS) 2022 Q1 法說會逐字稿

Good morning, and welcome to AirSculpt Technologies First 2022 Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded. (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 first 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. Risks 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 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.

With that, I'll turn the call over to Dr. Aaron Rollins.

Thank you, Dennis. Good morning, and thank you all for joining us today. First, I want to say the first quarter saw us reach the highest quarterly volume in revenue that we have ever achieved in the history of our company. For the quarter, we generated $39.5 million of revenue, reflecting outstanding growth of 51% over the prior year quarter. Additionally, going into the second quarter, the demand we are seeing is higher than we have ever experienced. We developed AirSculpt 10 years ago with 1 center in Beverly Hills. We now have a national network of 19 centers across 15 states, and we continued executing on our growth plans and opened a new location in Las Vegas during the quarter.

We remain on target to execute on our de novo strategy of opening 4 centers this year, which speaks to the demand for our services domestically. As we mentioned on our previous call, we also believe there is a great opportunity to also expand our network of centers internationally. And we anticipate opening a center in Toronto, Canada in the second half of this year. We look forward to continuing the momentum for the rest of 2022 and beyond, and we are excited about the opportunities ahead of us as we continue to expand into new markets and deliver incredible results for our patients and our investors.

There is tremendous wind in our sales from favorable trends in the aesthetic space, especially in fat reduction and body contouring. A recent publication by the Aesthetic Society showed that liposuction surgical procedures increased to approximately 500,000 procedures in 2021 and is now the top aesthetic plastic surgical procedure performed today, surpassing breast augmentation. These statistics are further evidence of the opportunity for us to increase our market share due to our superior results and technologies.

We remain committed to driving AirSculpt's brand awareness. We believe most people who want body-contouring services and fat removal don't know that we exist. We are focusing our plans to reach this group of customers by expanding our usage of celebrity influencers, earned, owned and paid media content as well as continued development of our social and digital media outreach. We believe these efforts to increase our brand awareness, along with the heavy demand for aesthetic services, will create exceptional value for our business.

We have also been very active in building out our team. Due to our rapid pace of growth, we have taken a proactive approach of making investments in various areas of the company to position us for further growth. Over the past 6 months, we have developed a dedicated physician-recruiting department, and these efforts are performing exceptionally well. During the quarter, we added 7 new surgeons to our network, which brings a number of physicians performing cases at our facilities to over 50. As a result of our increased recruiting efforts, we recently hired our second surgeon trainer, which will allow us to train newly recruited surgeons more effectively as we strive to meet customer demand.

During the quarter, we also expanded our clinical capabilities by adding a Chief Clinical Officer to not only support our clinical operations, but also to lead our upcoming health research project. As we introduced on our previous call, we are excited to undertake a health research study on the effects our procedures have on a patient's metabolic parameters. We are well into the process of designing the study, and we are on target to submit to the Institutional Review Board for approval later in the second quarter. We expect patient enrollment to begin this fall, and we anticipate having results from the study in 2023.

Additionally, we have contracted with a national adult stem cell banking company, which will allow us to offer our patients the opportunity to bank their stem cells harvested from the fat removed during their AirSculpt procedure. We believe this is one additional way for us to further promote the health and wellness of our patients, and we plan to start offering this in the second quarter.

I'm sure you all have questions on how the current inflationary environment and increasing interest rates will impact their business. While we can't predict the future, our current demand is stronger than we've ever seen in our history. We also have a very resilient business model, which is a low-fixed cost structure, coupled with a strong balance sheet to support our business.

Now I want to turn the call over to Ron Zelhof, our Chief Operating Officer. Ron?

Thank you, Dr. Rollins, and good morning, everyone. I'm going to share some information regarding our de novo and procedure room expansion projects. But before I do, I want to say thank you to the AirSculpt team. You performed magnificently every day by bringing first-class results to the patients we treat, especially in the face of challenging times brought on by COVID. Now I'll provide you with a development update.

As you know, we opened a center in Las Vegas in March, and up to this point, demand has exceeded our initial expectations. We've now opened 3 centers over a 4-month period, and each of these centers are performing exceptionally well. As previously discussed, it takes approximately 4 months for a center to become cash flow-positive. And while these new centers have a short-term negative impact to our margins, they give us a great platform for margin expansion as we grow revenue over the rest of the year.

We expect to open our next center in Boston in June, which will be the first de novo that we have opened with 3 procedure rooms. 3 procedure rooms not only allow us to meet the demand we anticipate in the market, but it also provide operational efficiencies as utilization increases.

Looking to the rest of 2022. We have plans to open 2 additional facilities later in the second half of this year, 1 in Philadelphia and another in Toronto, Canada, which will be our first international facility. We are also diligently working on our centers for 2023, and we look forward to sharing some more about those markets in the coming months. We have also been busy adding more procedure rooms to some of our existing centers.

As mentioned on previous calls, our legacy centers were built with only 1 procedure room. Due to capacity constraints, we've been converting or, in some cases, relocating those centers to larger facilities. We relocated Sacramento in the fourth quarter of 2021, expanding this facility to 3 procedure rooms. Having the third room not only gives us increased capacity, but also allows us to operate on patients faster and more efficiently.

In March, we added a procedure room to our Chicago facility. In March, and I am pleased to say we relocated our Dallas Center on May 2, and it also was expanded to 3 procedure rooms. As discussed on previous calls, it typically costs less than $1 million to open a new facility. And so far, we have not seen a significant impact from inflation nor have we encountered disruptions in our supply chain that would delay the opening of new facilities and procedure rooms that are scheduled later this year.

We are so excited about the interest and demand we are seeing in existing markets and in our new markets. Due to our record volumes in revenue, and to further prepare for our growth plans, we have been expanding our team in both clinical capabilities as well as our sales and operations to prepare for further growth acceleration.

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

Thanks, Ron. First, I'll share some remarks on the first quarter and our liquidity and then provide some thoughts on our outlook for the remainder of the year. Our revenue increased $13.4 million to $39.5 million, a 51% increase from the prior year quarter, and our cases increased 31.1% to 3,156. The increase is primarily a result of adding 5 de novo centers over the prior year quarter, which expanded our footprint to 19 centers as of March 31, 2022.

Additionally, we experienced same-center increases in both volume and revenue per case. Our revenue per case was $12,530, a 15% increase over the prior year quarter. As a reminder, there are several variables that determine our pricing. While it is primarily based on the length of time a patient is in the procedure room, which can vary due to the number of areas being treated, other factors include the volume of fat being removed and whether a procedure involves fat transfers.

For the first quarter, fat transfers continue to make up greater than 20% of our procedures performed. Not every patient is a candidate for a fat transfer for a variety of reasons. However, we expect to maintain this percentage as case volumes grow.

Same-center revenue increased 29% over the prior year quarter, driven by strong case growth and an increase in rate. Much of our same-store growth can be attributed to favorable trends in the aesthetic space and to expanding our marketing and selling capabilities, especially AirSculpt TV, to increase brand awareness and to attract more patients into our centers.

Our cost of services for the quarter as a percentage of revenue was 37.1% versus 33.6% in the same period last year. As Dr. Rollins and Ron both mentioned, due to our rapid growth, we have been making certain clinical additions to our nursing teams, which started last quarter and continued into the first quarter. These investments further enhance the quality and safety for our patients and better prepare us for future growth in both existing centers and the new centers we are developing.

Our margins in the quarter were impacted approximately $400,000 or 100 basis points from these investments, which are now mostly complete. And we expect to begin leveraging these investments over time as revenues continue to grow at a strong pace. Additionally, our cost of services were impacted by approximately $150,000 or 50 basis points related to increased staffing costs due to COVID.

As Ron mentioned in his remarks, the opening of 3 de novos in the past 4 months also impacted our margins by approximately 130 basis points. We expect this impact to be short-lived as demand in these centers has been strong and will give us a platform for revenue growth later this year.

Our advertising costs, which include our digital, social and traditional advertising, were $4.8 million for the quarter, which is approximately 12.2% of our revenue. When combined with our marketing and sales personnel costs, our total customer acquisition costs for the quarter were approximately $2,200 per customer, down sequentially from $2,600 per customer.

Based on gross margin per case, which typically averages over $8,000, the return on our customer acquisition cost is nearly 4x, which we're extremely proud of. As a reminder, our marketing costs as a percentage of revenue and per customer rates can fluctuate quarter-to-quarter related to the timing of investments we make compared to the related revenue increases we achieved after making these investments.

Our adjusted EBITDA was $9.8 million for the quarter. Just to remind everyone, this was our first full quarter as a public company. Adjusted EBITDA included approximately $2.3 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 34%.

Additionally, our public company costs are approximately $650,000 more in the first quarter as compared to other quarters due to our annual SEC compliance requirements. And finally, our adjusted EBITDA margin for the first quarter was 24.8%, which was also impacted significantly due to public company-related costs.

Moving on to liquidity and cash flow items. Our cash position as of March 31, 2022, was $27.2 million, and we have a $5 million revolver that is undrawn and has no outstanding letters of credit. 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 1.64x.

Cash flow from operations for the quarter amounted to $7.1 million, which reflects approximately 72% adjusted EBITDA to cash conversion. An attractive aspect of our business model is that we are 100% self-pay with no reimbursement risk. We receive all of our payments upfront, so we have no accounts receivable to collect. Additionally, our surgeons are contracted and receive payment only after a surgery is performed, which allows us to manage our operating cash flow very effectively.

We also invested $4.3 million during the quarter, primarily related to opening our center in Las Vegas and our upcoming openings in Boston and Philadelphia and our procedure room expansion projects.

Now I'll provide some information on our outlook for the remainder of the year. As we think about revenue, we now expect to achieve between $175 million to $179 million for the full year, up from our prior forecast of $172 million to $176 million, and represents a 31% to 34% increase over 2021 levels. And we are maintaining our adjusted EBITDA outlook of $58 million to $60 million.

From a modeling perspective, we expect to open 4 centers this year. As you heard, we opened a center in Las Vegas in March, and we expect to open Boston in late June. And the remaining 2 center openings are expected to be late in the second half of the year. Also, as we have previously discussed, there is a slight element of seasonality in the business during the second quarter as patients prepare for the summer months. And our first quarter tends to be a lighter quarter with volumes trending upward in March and through the second quarter.

Just to remind everyone, as a result of our IPO, we reorganized into a C-corp and are now estimating income taxes accordingly. Additionally, our stock-based compensation increased related to IPO equity grants that were issued as part of the creation of our 2021 stock incentive plan. These initial IPO-related grants have a 3-year vesting period and are expected to impact net income significantly until they fully vest.

Before we take questions, let me say that this truly is a unique company that provides incredible results for our patients. We have an extremely attractive business model that provides an excellent return on invested capital and is being fueled by favorable trends in the aesthetic space, and we look forward to further capitalizing on these tailwinds.

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

(Operator Instructions) Our first question is from the line of Josh Raskin with Nephron Research.

Two questions for you. The first one here is the boost in guidance for revenues of $3 million. How much of that is sort of Boston coming online faster? I think about each month being maybe $750,000, $800,000 of revenue. And then how much of that was better demand? And if it's -- and regarding the better demand, if you could just talk about what specifically is driving that geography-wise, product mix-wise.

Thanks for the question, Josh. I would say it's probably equally weighted if I were looking at it from the standpoint of the increase. We did bring Boston on a little bit earlier. But remember, when we bring those on, they tend to ramp up a little slower intentionally for quality purposes. But the demand is really the main driver as far as us increasing the revenue guidance.

All right. Could I hear half and half? Or more -- is it more (inaudible)

I would weigh it a little bit more on the demand side.

Okay. And what specifically is driving that? Is that more higher cost procedures? It certainly looked like you saw that in pricing. Is it more fat transfers? Is there specific geographies that are outperforming?

It's really not related to what I would consider the activities that we are doing. It's really more of the industry itself. I mean we've -- we discussed a report that came out recently that just showed the massive demand for fat reduction-type procedures and body contouring. And that is really what is putting this major win behind us. And we -- again, we're extremely bullish from that standpoint, which is why we've kind of looked at it from the standpoint of saying demand is really the key driver here.

And our procedures, they fluctuate from month to month. I mean we don't -- we're not a high volume center. Our centers don't run a lot of volume. And so there could be some movement within our rates just due to the types of procedures that come in the door. There's nothing anything that we would call out significantly. I mean at certain months, we may do more chins, which are really short procedures, but they're very profitable procedures. And so while the rate might dip a bit, it really has no significant impact to what we think of from a bottom line perspective.

So we like where our business is. You called out fat transfers. Fat transfers aren't for everyone. Not every patient is a candidate. And quite frankly, most patients aren't candidates for that for various reasons. 20% is kind of what we've been sort of calling out as what we expect to maintain as we -- as our volume grows, and that's where we expect to maintain. And it's kind of where we've been over the last several quarters.

And then just separately on the new centers, I'm assuming it's a little too early to know when I think about Las Vegas, but Miami, Salt Lake. I'm just curious, it sounds like you've seen a little bit of outperformance there. Anything particular there? And maybe any lessons you've learned in terms of the newer openings that are going to be helpful in the future?

Josh, it's Ron. How are you? All of our centers are performing slightly actually ahead of expectations, and we're extremely pleased with how they're performing right now.

I think the biggest surprise might be our Miami Beach location. When we opened it, we were maybe concerned about pricing just because of the -- some of the challenges maybe in the Miami, South Florida market area as far as these types of procedures. So that's been a -- quite frankly, a positive for us that the rate there hasn't seen significant pressure at all. We've actually been very successful in our -- in getting our rates.

Our next question is from the line of Simeon Gutman.

I have two questions. First on demand and then second on some costs. So first, on demand. Can you share with us what, I guess, forward bookings look like? I don't know if you'll touch on quarter-to-date, but that's fine. But in light of the backdrop, which mostly is stock market changes and few political worries, curious if there's any correlation to how demand is shaping up going forward. That was my first question.

Yes. Thanks, Simeon. You're right. While we don't give any sort of forward-looking specific information, what we would say though is that the first part of the second quarter is really, really going strong. We're very positive as to what we're seeing from volumes and sales and bookings. And so we're extremely, extremely excited about what's ahead of us. Second quarter is looking good so far.

Okay. Great. And then the second question is on cost and scaling. There were 2 buckets that, I don't know if it's caught our attention, marketing spend and then surgeons but especially the second trainer. Can you talk about how much of this is planned versus unplanned? As the business scales and grows, what portion of this is proactive? For example, marketing, where you see an opportunity and you think it would have a good return versus there a certain level that needs to be spent to support. And then at the same time, more surgeon trainers, this is being scaled for the first time, right? You guys are doing it. Are there areas are you finding that the business needs more investment? Or is this all planned as the number of centers ramp up?

I can start. It's Aaron Rollins. I can start with some answers about our investments in the business. Getting our second surgery trainer, it was wonderful for us, and it was hoped for and planned. There's not many people that can do that, and we're really happy to have them. Having 2 full-time surgical trainers really allows us to scale at a different pace, and it allows us to maintain our quality and our safety in a way that we couldn't before. So we're thrilled about that as a money very, very well spent. We don't plan on hiring a third at this time. Dennis, do you want to fill in some more?

Yes. I would say, as I look at kind of the original outlook, I think those costs, we've pulled forward a little bit earlier in the year compared to what we sort of expected, too. And quite frankly, we did so because our revenue has been so strong and the demand has been so strong.

One of the things that we want to do is prepare for growth, and we want to accelerate our growth, not only in same-store, but also accelerate our growth in new facilities. And so we've -- again, because of the demand, we felt that it was the right time to invest a little bit sooner.

Another thing is we're happy to see our customer acquisition cost went down to $2,200 per patient for the quarter. And that's a strong return on CAC spend because our gross margin is in excess of $8,000 per patient, which is close to a 4x return.

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

So I'd like to, one, expand on kind of what's going on in the current macro environment. And I'd just like to get your thoughts. I mean, I know demand is obviously trending very well. But as we hear more about consumer sentiment starting to decline, both here in the U.S. and internationally and maybe consumers starting to cut spending, how are you viewing the resiliency of the broader aesthetics market through these conditions? And how do you -- how are you expecting the market to fare if we do continue to go into a downturn here?

This is Aaron Rollins. Thanks so much for the question. I've been doing this my whole life, and I've been in -- the CEO of AirSculpt now for over 10 years. And I can say with absolute certainty that I have never seen this level of demand. Our volumes have never been better. Our financing rate is exactly the same. And I see demand actually accelerating. So that's all I can really tell you. So I feel great about the coming quarters here. And these macro conditions have had no effect on our business. I mean, in fact, it's accelerating.

I would add a little bit that we are a luxury brand. And so with that, our customer base tends to be a bit more resilient to some of these macro environment trends that we're seeing. But again, like Dr. Rollins says, from our demand that we're seeing, it's -- again, I'd say, knock on wood, we're excited about where we're going.

We're not seeing cost (inaudible).

Helpful. I really appreciate the color there. And then I just like to touch a bit on Renuvion. You didn't really mention it in the prepared remarks, but can you just give us any color on how that's been going? How many offices now have this technology? What has demand been? And can you just walk us through the economic procedures or economic of this procedure again, so we [understand] what's the add-on cost and what's the cost for -- on you bringing this on. Just any color there would be helpful.

I can start. So we're really happy to offer Renuvion. And Ron, how many offices do we have it in to date?

7.

We have it in 7. And the way we're rolling it out is based on demand. If there's an office where patients are asking for it and which we call AirSculpt+, then we immediately get them a machine. There are some offices that do a lot more of it than others, and it's really just based on patient demand for it. The economics are very good. I'm not sure, Dennis, do you want to say what we're allowed to say about that?

Sure. We usually see about a $2,500 add-on typically for that. Obviously, it depends on the -- every case is different, but that's on average about what it looks like.

And the good thing is for that $2,500 add-on, that's about 20 minutes more of operating room time. So it's really good. And I'd like to say, because we're a results-focused company, it actually works very well. So I'm very happy with the technology. I think it's extremely safe. And we have every plan to continue to roll it out based on demand from any individual office.

Our next question is from the line of Whit Mayo with SVB Leerink.

Dennis, I just wanted to go back to the topic of the increased investments and the timing. I totally appreciate the decision to pull the trigger on these. I don't think it's actually fully within your control when you find the right people, the right talent to join the team. So that decision seems to oftentimes be made for you, not really easy to put that into a budget. And you guys don't give quarterly guidance, and we're getting a few questions here. So if we just kind of take all the puts and takes here of like how the quarter developed with these increased investments. How did it really compare with your internal plan?

Thanks, Whit. First, before we get into the investment side, I mean, we obviously get impacted heavily by being a public company. And so I just want to make sure that, again, we sort of reiterated that point, that we saw excellent adjusted EBITDA growth year-over-year when you account for those costs that we incur. And I know that wasn't part of your question, Whit, but I think it's just a significant number. We just need to continue to make sure everybody's calling that out as well.

But Whit, and kind of like what I'd shared earlier, the demand has really what caused us to pull these costs forward. We've -- again, as we've always talked about, quality, safety are paramount for us. And so that's caused us to really focus on bringing our nurses up to a higher standard and that we're hiring more RNs, whereas in the past, we had LPNs. We put nurse managers in place. And all of this is because, as you grow a business like we are in the health care space, you can't sacrifice quality for rapid growth. And we see the opportunities out in front of us for this growth. And so we invested these dollars primarily into the quarter.

We feel like we're right at the point of maxing out from that standpoint. So we feel like the investments we've made in that arena are about where we need to be. And so we're going to be able to leverage that number as we move forward through the year. We had probably a $400,000 impact in the quarter. If we think of it from a sequential and over prior year, we had about $400,000 -- $500,000 impact there related to adding these nurses and other clinical items.

As Dr. Rollins talked about, investing in our surgical trainers. I mean, those are -- that's critical and that if we're going to be able to open up new centers and maybe open up new centers at a faster pace, we have got to be able to not only recruit the doctors but also to train the doctors. And so adding that second full-time dedicated physician trainer just speaks to how we see the volume out in front of us and the opportunities there. And so those are 2 of them out.

We did have a little bit of COVID impact where we had over time and duplicate staffing and those types of things. Most of that was in the first 2 months of the quarter. We're not really seeing a lot of that and hope that be the case for the remainder of the year, but we'll see. I know in the past, we've been very resilient. We've been very effective in working around the COVID impact that we've had. We've been able to keep the revenue numbers going and by rescheduling cases in a timely fashion. So we feel good about that, but that obviously hit us a bit in the quarter.

And then from a margin percentage standpoint, I don't think we've spoken to this very much on the call yet, but we opened 3 centers in the last 4 months. And that's a little bit heavier than what we've ever done in our history at one time. And that's driving our margins down. And the reason being is because, as you guys know, it takes us about 3 to 4 months for these centers to become cash flow-positive. But it gives us a great platform for EBITDA growth as we kind of run throughout the rest to the year. That hit us for probably about 130 basis points in margins this quarter.

So we really feel good where we are. We're excited. Again, making these investments now just really prepares us for what we see coming down the -- coming down that line for us.

Yes. No, I think I get it, it seems like you guys kind of come out of this quarter with a little bit more enthusiasm than when you entered the quarter. Can I just ask one other question on the relocations? Any way to size disruption that you historically feel when you do a relocation? I think you stagger these pretty efficiently, but just trying to get a sense if there is any expected disruption from a relocation such as Sacramento or whatever?

Whit, it's Ron. Number one, I appreciate the question. The answer is, no, we don't -- the way we do it is we do it over a long weekend. And the last one we did in Dallas, which was a large relocation for us, again, Friday afternoon comes along, Friday evening, and we're already been packing up. And then we move over the weekend, and we start the new cases on Monday. So that's how we go ahead and do these. So there's no disruption whatsoever.

Perfect. I'd like to add -- I'd just like to add that I'm very happy to say that we recently used all 3 procedure rooms in a relocated office for the first time at the same time. And that's really big for us.

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

I guess this one is for Dennis. I mean normally, 2Q is your high watermark. Is that going to be even more the case this year if we think about sequential revenues, just given the preopening and maybe the first quarter has some more [profit]?

I think on a sequential basis, John, how we're seeing it is obviously, Q2 is going to ramp up significantly. I mean that's been our history. How we look at -- I'm looking at the mid-40 range for revenue for the next -- actually, for the next 2 quarters and then upper 40s for the fourth quarter on a revenue perspective. Obviously, the fourth quarter is getting benefit from additional ramp and some new centers that we'll bring online throughout the year. But that's kind of how I see it laying out for the remaining quarters from a revenue perspective.

And I know you mentioned the extra -- the audit costs, sorry if that's not the right word, but the extra public company costs in the first quarter. But how should we think about your fixed cost kind of 1Q to 2Q, if we fully -- quarter as, if you will, the investment that you made? What's the kind of step up taking those 2 things in consideration?

Sure. One thing I would make a point is also, if you look at the numbers on a sequential basis, Q4, we were only public for 2 months, and our public company costs run on average about $650,000 to $700,000 a month. So that's a sequential impact that we beared in the first quarter that we didn't necessarily see in the fourth quarter. Now that's going to run with this. And in the first quarter, we usually see about a $650,000 to $700,000 increase over future quarters because of the annual SEC requirements.

Got you. Was there anything else in the first quarter that maybe you layered in the expense mid-quarter that will be a fuller, which is kind of (inaudible).

I think from that standpoint, I would run with it. I mean, again, we've made the majority, if not all, of our clinical investments. So we feel good about that. And so now we're just again have prepared for our -- for that growth that's coming up.

And then last one for me. Could you remind us stock comp, kind of what your expectations are for the balance of the year? Is there any seasonality to it? And what's the full amount you need to invest before it levels off? I know that was part of the pre-IPO discussion, but maybe just level set everybody for that.

Yes. So we -- there's not really going to be what I would consider a significant seasonality to that. Most of what we see on the stock comp line is due to the original IPO grants that took place. It's about [7.3] a quarter. But what I would also add to that, just for modeling purposes, is that due to 162(m) requirements for tax purposes and the deductibility of various executive comp, we won't get the benefit, if you will, from an income tax perspective for that. And so that will definitely impact our effective income tax rate this year.

How long are you going to be running at this level and so (inaudible) if you fully absorbed the pre-IPO grant?

Yes. So you will be running for a 3 years. And so we're basically 6 months into it, so about another 2.5 years, John.

Okay. Very good. And then just remind me, if you would, I know you haven't seen -- I guess, 2 other things. First of all, how far out are you bookings typically?

Well, that's really -- yes, go ahead.

Our bookings run depending on facility. There can be anywhere from just 2 weeks to 6 to 8 weeks. It just depends on our one-room existing legacy centers. Those tend to be a little longer. But on our newer centers, it's not long at all.

Okay. But between you're sitting here almost mid-quarter, and then you've got probably maybe 3 weeks of bookings, so you get pretty solid visibility on 2Q, that's my -- will that be part of (inaudible) for your comments just to be kept in obvious?

Right.

Right. We do have -- we have some pretty good view on it, John.

Yes. Okay. And lastly, maybe I'm just thinking about this because I'm in Tampa, and I know you've got one in Orlando, but do you think, if we look down the road 3 years or something, the company might think about densifying a little bit or maybe like doing a couple of days a week, and there's a satellite market 1.5 hours away? How do you think about something like that? When you think about building this out, what's the -- have you thought any more about like, well, maybe we can put more of these out there and we thought we did.

I'll take that. Thank you. So we're currently building our support teams, both clinically and operationally to increase our growth point. We don't want to jeopardize quality and results for the sake of growing faster. And that's why we're making these investments in the business now is because we do see that opportunity moving forward.

And if your "secondary markets", not the traditional super MSAs, but places like Charlotte and Orlando, have they ramped consistent with some of your bigger market opening?

Frankly, our mid-markets are performing exceptionally well. So some recent openings have really exceeded my ramping predictions. And it's -- their -- the ramp-up and the performance is better than I've ever seen in this business.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dr. Rollins for closing remarks.

Thank you. I'd like to conclude by thanking you all for listening, and I'd like to thank all of our employees and doctors for such excellent work. I couldn't be more excited about our growth and our performance, and I'm looking forward to the future. Thank you all.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.