Beauty Health Co (SKIN) 2021 Q3 法說會逐字稿

Greetings, and welcome to The Beauty Health Third Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Dawn Francfort, Managing Director at ICR. Thank you, ma'am. You may begin your presentation.

Good afternoon, everyone. Thank you for joining The Beauty Health Company's conference call to discuss the company's third quarter 2021 financial results, which we released this afternoon and can be found on our website at investors.beautyhealth.com. With me on the call is Brent Saunders, Executive Chairman; Clint Carnell, Chief Executive Officer; and Liyuan Woo, Chief Financial Officer of The Beauty Health Company.

Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures such as adjusted gross profit, adjusted gross margin, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measure are included in the earnings release furnished to the SEC and available on our website.

Now I would like to turn the call over to Brent Saunders, Executive Chairman of The Beauty Health Company.

Thank you, Dawn, and good afternoon, everyone. Thank you for joining us for a discussion of today's third quarter results. As I'm sure you saw in today's press release, I will be stepping into the role as the company's interim CEO effective January 1, 2022. As part of this transition, Clint will remain CEO through year-end. At which point, I will assume additional responsibilities of the CEO until a permanent successor is named. On behalf of the Board, I want to thank Clint for his dedication and commitment to Beauty Health over the past 5 years. He has been a driving force behind the company's success, navigating Beauty Health through COVID as well as our business combination in May. Under his leadership, Beauty Health has become a solid platform for us to build upon as we look towards our next pillar of growth and begin to accelerate our acquisitions. Given these objectives and the strength of Beauty Health, Clint and the Board felt that this was the ideal time to begin the CEO transition. We thank him for his contributions.

While Clint and I have been working closely over the past few quarters, I'm excited to step in more fully and work with the team to continue to drive growth and focus on our strategic initiatives. This is a compelling time, and I am excited about our future. The company has a strong foundation and I look forward to the next chapter and the significant growth opportunities we have ahead. I would now like to turn the call over to Clint.

Thank you, Brent, and good afternoon, everyone. Before digging into our performance, I would like to express my gratitude for being part of building this category creative brand over the last 5 years. This has been an exciting journey, and I am pleased with what we have accomplished. I would now like to thank our employees and providers across the globe for all of their hard work and commitment during this challenging environment. They are vital to our success and propelled us to record performance again this quarter.

During today's call, I will provide color on our third quarter performance as well as discuss our growth strategies and outlook for the remainder of the year. I will then turn the call to Liyuan for a more detailed discussion of our third quarter results as well as our updated 2021 financial outlook in more detail. We are very pleased with our results this quarter as well as the strength of our year-to-date performance. Our sales and adjusted EBITDA continue to exceed our expectations and deliver new record results, while we continue to lead through macro challenges and select market closures related to the delta variant surge. Our strength speaks to the diversification of our business across channels and geographies, as well as the favorable health and wellness tailwinds that remain strong, and we believe are here to stay.

We are executing across all key strategic initiatives we laid out for you last December. And as of today, we grew our delivery systems to over 19,000 units as we leveraged our virtual and physical branding events to increase our consumer engagement with our Beauty Health community. We invested in international infrastructure, adding Indra and Stephan to lead to APAC and EMEA regions, respectively, to meaningfully expand our business in these markets, and we are excited to add 2 additional products in the coming months.

Now turning to our financial results for the quarter. Adjusted EBITDA was $5.8 million, once again driven by strong net sales growth of almost 100% gross margin expansion and disciplined expense management despite challenges related to the delta variant. We continue to accelerate our brand-building initiatives to capitalize on the enormous white space opportunity we see ahead. We further strengthened our financial position with the completion of our convertible senior notes offering, which was upsized to account for the strong investor demand. We raised approximately $900 million in dry powder from this offering in the warrant redemption to escalate our strategic investments and build upon a strong platform we created in Beauty Health.

Our brand-building initiatives effectively strengthen our connection between our consumers and providers which further expands our Beauty Health community. Our vision of creating a deep consumer connection with The Beauty Health community is a top priority, and we continue to make progress this quarter; improving our engagement with our customers by reaching them where they live, work and play. As a result of these achievements, we are well positioned to deliver on our long-term strategic goals. We are raising our top line and EBITDA outlook for our full year 2021 to reflect the confidence in this business model, as well as our ability to execute against our multi-lever growth trajectory.

During the quarter, we continued to make progress on our strategic growth initiatives to build brand awareness, accelerate innovation and expand our international presence. Our investments behind these initiatives remain elevated in order to create a deeply connected and engaged consumer within our Beauty Health community. It creates a strong community at the center of our vision and is essential to our long-term success.

So I will now focus on these key initiatives in detail. First, we invested in brand initiatives to drive consumer awareness. And during the quarter, we accelerated our branded investments to engage with our consumers and providers both virtually and to a greater extent, physically as we look to strengthen and build our Beauty Health community. We continue to invest in HydraFacial CONNECT, our clinical training, professional development and holistic education programs designed for the expedition, creating a highly passionate and educated community of influential providers.

Our business in the retail channel improved this quarter as more locations reopened fall and COVID-related closures from March of 2020, we further expanded our presence in the retail channel with select partnerships during the quarter, including Nordstrom. While we are still early days with these partnerships and have not built meaningful revenue into our outlook for this channel, we do see it as a unique pathway to bring more consumers into our community. During the quarter, we accelerated our marketing initiatives, building on our second quarter's effective branding programs. Our GLOWvolution campaign has been highly successful by engaging consumers and expectations on our U.S. coast-to-coast bus tour that started on June 4 and continues through the end of September. At each stop, we treated 250 consumers with HydraFacial on-site during a 2-day period, working alongside our customers and delivering a compelling experience and reaching a meaningful number of consumers in each market we visited.

We believe GLOWvolution has been highly effective at activating demand by driving community engagement with both best physicians and consumers. By creating a physical HydraFacial event, we drove brand awareness and consumer demand because you have to get it to get it. As we have previously discussed, 2/3 of consumers who try a HydraFacial for the first time, will become repeat customers. And of those 2/3, approximately 1/3 of the customers will become frequent super users, which is why building brand awareness and treat new customers is one of our top investment initiatives. Over the past year, we have transitioned our business from a B2B to B2C and back to B, effectively connecting our passionate communities.

Second, we maintained our elevated investment level in innovation, creating product and technology to deepen the consumer engagement into our Beauty Health community. Improving our product offering and enhancing our technological capabilities to build upon our Beauty Health community is important as we effectively increased our connection through our customers. Our upcoming new product launches remain on track, including the November 11 launch of our Glow & Go at-home device, which I will discuss in more detail in just a moment. During the quarter, we launched a new booster collaboration with Epicutis, targeting the Neck & Décolleté areas and extending their treatments beyond the face. We also continue to test our app that builds consumer awareness and serves as a direct connection to the customer. And taken together, all of these initiatives allow us to better connect with our consumers where they live, work and play, further expanding our direct-to-consumer capabilities and relationships.

Third, we continue to expand our international infrastructure to support our strong international growth. With our sales internationally up over 105% this quarter, these markets remain a top investment priority. During the quarter, we entered South Korea through a new distributor partnership. We continue to globally increase market initiatives to expand brand awareness as well as invested in our team to build the necessary infrastructure to support this growth. And as previously announced, Stephan Becker joined us as President of EMEA in October, and we are continuing to make select tires, particularly as we build out teams in local markets. We also made progress on our plans for headquarters in our EMEA and APAC regions, which we'll provide updates to you during future calls. We are very pleased with our accomplishments this quarter and year-to-date, especially given the still volatile environment as it relates to the delta variant and increasingly challenging worldwide macro concerns, which Liyuan will discuss in greater detail.

The sustainability of the momentum we are delivering despite these challenges, was further supported by our almost 100% sales growth this quarter and proof of our highly resilient business model. We are focused on creating a unique and powerful consumer brand and platform in Beauty Health with significant growth ahead. As we look forward to our fourth quarter and beyond, we will continue to leverage our infrastructure, grow our installed base in order to fund our investments, capitalizing on these significant opportunities. And the combination of being well capitalized and our broad geographic presence allows us to pursue strategic acquisitions in a disciplined manner.

Turning now to a brief overview of our guidance. As a result of another strong quarter, we are raising our top line and EBITDA guidance for 2021. We now expect net sales in the range of $245 million to $255 million, up from our previous guidance range of $230 million to $240 million. We also are increasing our EBITDA to $30 million from our prior guidance of $25 million despite the significant investments we are making in our business. These upward revisions are based on the momentum in our third quarter results. And we will continue to invest ahead of our growth because we have a sense of urgency to capitalize on the category we have created.

I will now provide you with details on our upcoming investments in our 3 key strategic growth initiatives. First, building and expanding consumer awareness remains a priority. Our marketing programs drive consumer awareness, which has proven to drive consumer demand. We are accelerating these market initiatives. Building our team and expanding our partnerships, especially in the retail channel in order to capitalize on the significant white space ahead. Our consumer activation programs are highly effective, and we will continue to leverage these events in select markets. Due to the success of GLOWvolution, which wrapped up at the end of September, we are bringing the event in New York City for the second week in December to build consumer awareness and mark the 1-year anniversary of our business combination announcement with Vesper Healthcare. We are also excited about our Black Friday and Cyber Monday promotions, which historically generated meaningful customer engagement.

On October 24, we participated in the Nordstrom's block party. We also are expanding our presence in the retail channel through our new partnerships, including ULTA, Laser Centers of Australia, John Lewis from the U.K. and select Marriott International Resorts & Spas. We see retail as an important channel to further build our consumer awareness and diversify our operating model as we continue to monitor and test new retail partnerships. Longer term, we see this channel as a significant opportunity.

Second, we are increasing our R&D investments and innovation missions in order to deepen and expand our consumer and partnership connections with our Beauty Health community. Our innovation initiatives will enhance our ability to meet our consumers with a live, work and play. And on November 11, we are launching a limited number of our Glow & Go handheld devices, with the broader rollout expected in 2022.

While we are testing the at-home market with our initial launch, we see this as a bigger opportunity over time. Our app, which we officially launched in October, allows us to engage with our consumer by providing self-scan assessments and an edge educational component among many other features. We remain on track to launch our HydraFacial 2.0 connected device in early 2022. A major technology upgrade from our existing HydraFacial, innovation in products and technology remains an important component of our overall strategy to building our long-term vision of seamlessly connecting and interacting with our customer through The Beauty Health community.

Third, we are accelerating the rollout of our global footprint as we build on our international infrastructure directly in key strategic markets and expand distribution partnerships into new markets. We are continuing to build our infrastructure and the team worldwide to capitalize on our significant international growth. Consistent with our strategy, we will continue to go direct in key markets where we see opportunities as well as establish new distributor partnerships in select new markets. Over the next few years, we expect our international business to exceed the U.S., and we are building the necessary infrastructure to capitalize on this opportunity.

In conclusion, we are proud of our third quarter performance. The results we have delivered thus far in 2021 support the power of the platform we have created and the community connection we are building in the dynamic Beauty Health category. We are a rapidly growing business, capitalizing on our multiple levers of growth. And I'm now pleased to turn the call over to Liyuan for a more detailed discussion of our third quarter financial performance as well as provide you with our updated financial outlook for 2021. Thank you.

Thank you, Clint, and good afternoon, everyone. Before I discuss our performance this quarter, I also want to thank our employees and providers worldwide for their continued dedication and effort that is underpinning our growth. This record performance, the successful completion of our convertible senior notes offering and the redemption of our outstanding warrants, all demonstrate the flexibility of our business model and the confidence of our investors in allowing us to continue the rapid growth trajectory we are executing. I will review our third quarter results, patch on our balance sheet, and then provide details on our updated 2021 outlook. I will make select comparison to our third quarter of 2019 as we believe it is a more meaningful comparison due to the COVID-19-related market closure in 2020.

Let me start with our third quarter results. As Clint mentioned, we're very pleased with our record performances past quarter as we continue to build on our strategic initiatives, which drove better-than-expected third quarter results across all metrics, despite delta variance-related restrictions, especially in the APAC region. Our systems and products have global appeal as reflected in our strong geographic segment growth in this past quarter. Net sales of $68.1 million increased almost 100% from last year's COVID-impacted sales of $34.6 million and up 72% from $39.6 million in the third quarter 2019. The significant increase was largely due to expansion in our delivery systems with over 18,500 active systems globally at the end of the quarter, and the continued strength in our consumables as COVID-19 restrictions lifted and more of our partners reopened. Strong trends in the U.S. and EMEA businesses and significant growth in the APAC region continued during the quarter despite a worsening COVID trend.

Now I'll share a few highlights from our 3 regions. Third quarter sales in America's region increased to $45 million compared to $21.2 million a year ago, and grew over 50% from our 2019 levels. The strength was driven by continued traction in the U.S. and solid performance in LatAm as markets reopen and consumer demand accelerated, as well as ongoing strength in our delivery system rollout. We continue to see select U.S. locations operate at reduced capacity to accommodate state and local regulations, especially in the nonmedical channel. We also saw consumable orders increase for customers reopening, which drove the acceleration from our 2019 levels. As Clint mentioned earlier, marketing and training activations, such as GLOWvolution also positively contributed to the increase in sales. Given the strong performance of GLOWvolution, we're extending even into Q4, and we're holding the event in New York City during the second week of December.

EMEA net sales of $12.6 million grew from $8.1 million in the prior year and expanded over 90% from the third quarter in 2019, driven by strength in the United Kingdom, Germany, France, Russia and the Middle East. The pop-ups in the Middle East and the U.K. continue to fuel growth for the region. Our creative marketing in Spain and France over help consumer awareness and contributed to the sales increase. In addition, we have also started to expand pop-up into Germany and expect to see further acceleration in growth.

Turning to APAC. Net sales of $10.5 million increased almost 100% from the prior year and over 200% from the third quarter of 2019, primarily driven by growth in China and Australia, despite the restricted COVID-related lockdown implemented in Australia. In China, we're continuing to focus on our system rollout while building sales productivity and continuing to expand our presence in both the medical and nonmedical channels. Our marketing and training program in regional markets also drove growth. Trends in APAC decelerated from the second quarter, primarily due to delta variant-related shutdowns in Japan, Australia, and part of China during the third quarter. Overall, our growth has been demand driven across all channels. We continue to see consumers asking for HydraFacial by name, especially in our more mature markets. Given the current brand recognition and our initiative to build awareness as well as international global self-care momentum, Beauty Health is attractively positioned to continue to both expand this category and take share globally.

Moving to profitability. Our gross margin was 67.6%, up from last year's 60.6%. On an adjusted basis, we expanded our gross margin by 320 basis points year-over-year to 71.5%. The increase was largely driven by fixed cost leveraging of higher-than-expected sales, improved selling prices for Delivery Systems, as well as cost-saving initiatives. This was partially offset by higher supply chain and logistic costs. On a sequential basis, our gross margin declined 340 basis points due to supply chain challenges and increase in logistic costs, as well as temporary impact from transitioning higher pairing inventory value related to the distributor acquisitions.

We will continue to focus on enhancing our margin structure. However, we expect the continued headwinds from global supply chain challenges and inflationary pressure to weigh our margins into 2022. We currently anticipate a higher shipping costs to continue into next year, partially offset by an accretion in margins related to the acquired distributor and pricing initiatives. During the quarter, there were a few significant noncash accounting entries from the valuation of warrants and convertible transactions, which we will address and adjust out as non-GAAP measures to focus on discussion on our core business performance. SG&A expenses in the quarter were $49.7 million as compared to $17.6 million for the prior year. As a percentage of sales, selling and marketing increased by over 1,400 basis points to 44.7% compared to 30.5% in the third quarter of 2020, which was constrained due to COVID. This increase was driven by greater sales commissions, higher personnel-related expenses and increased marketing spending.

During the quarter, we significantly ramped up our marketing spend as we strategically activated demand. We will continue to focus on optimizing our investment in sales, marketing, and training, particularly as we look to build upon our community engagement initiatives.

Moving on to R&D. We invested $1.9 million in the third quarter of 2021 compared to $0.6 million in the prior year as we accelerated our investment ahead of our launch of the HydraFacial Nation app, the initial test of our new home device and the upcoming launch of upgraded delivery system.

As Clint has shared, innovation is one of our main pillars of our strategic investments. We will continue to prioritize investments in innovation. Our G&A expenses of $19.2 million included $3.9 million of noncash stock-based compensation expenses. Excluding this item, our G&A expenses were $15.3 million compared to $7.1 million in the third quarter 2020. The increase in G&A expenses was driven by nonpayroll-related public company cost of $1.7 million, which includes D&O insurance, SOX compliance and additional audit and tax-related services, as well as higher personnel-related expenses due to increased headcount. We expect such public company costs will continue at this level.

During the quarter, we accelerated our investment in building out the necessary infrastructure to support the significant growth in our international markets as well as continue to strategically invest in EMEA and APAC base camp, people, and technology. We have gone live on our first global ERP platform, which includes CRM and e-commerce, partnering with Oracle NetSuite, we are positioned to extend our brand to global markets and improve operational agility. This will never be pain-free, and we expect execution change to continue. The new ERP platform advances our cloud-native HydraFacial ecosystem and will be expanded to include new capabilities in 2020. We expect these investments to remain elevated over the next few quarters. We will continue to invest ahead of our significant growth opportunity in order to capitalize on our long runway ahead.

In addition to GAAP measures, adjusted EBITDA is an important profitability measure that we use to measure our business internally. For the quarter, adjusted EBITDA was $5.8 million versus an adjusted EBITDA of $7.6 million in 2020. The decline in our profitability is a result of increased commissions and bonuses related to strong sales and acceleration in our marketing and scaling spend as well as increased headcount for future growth. This was partially offset by higher sales and gross margin improvement. Our adjusted net income for the quarter was $2.5 million.

Weighted average shares outstanding were approximately 132.3 million in third quarter 2021. Subsequent to the quarter end, we announced plans to redeem our 15.3 million outstanding public warrants. On November 3, we completed the exercise and redemption of our public warrants, which amounted to about $185 million cash, which you will see in detail in our press release dated November 8.

Turning to the balance sheet. We ended the quarter with $718.6 million in cash and cash equivalents. During the quarter, we priced our convertible senior notes offering, which we upsized to account for the strong investor demand, and successfully raised $728.7 million. With the proceeds, we purchased cap call covering the aggregate numbers of shares that underlying the notes, in order to reduce potential dilution and/or offset any potential cash payments. With nearly $900 million in cash, we have the dry powder to continue to invest in our business as well as pursue strategic acquisitions as we accelerate our initiatives to capitalize on our significant opportunity in the rapid evolving Beauty Health industry.

Now I will share more details on our outlook for the full year. As Clint mentioned, we're raising our 2021 guidance. For our fiscal 2021, we now expect net sales in the range of $245 million to $255 million, barring any deterioration related to COVID-19 trends and up from our prior guidance range of $230 million to $240 million. We remain cautiously optimistic while observing select closures related to delta variants in both APAC and EMEA regions.

We're raising our adjusted EBITDA outlook to approximately $30 million, up from our prior guidance of approximately $25 million. This upward revision largely reflects our better-than-expected top line trends so far this year, despite our ramp-up investments in increased spending on branding and global infrastructure initiatives that are accelerating our share gain worldwide. We continue to anticipate capital expenditure of up to $50 million in 2021. Our revised guidance for this year reflects our strong performance to date and solid trends that have continued into the fourth quarter.

As we look beyond 2021, we're excited about the long-term opportunity across our multiple levers of growth as we capitalize on the significant opportunity in this category we created. However, given the uncertainty of the environment in which we operate, an incredible growth we are lapping in 2021, we remain cautious. We continue to face potential risk for further market closures related to COVID-19, global supply chain challenges as well as inflationary headwinds related to higher raw material, shipping and labor costs. Subsequent to quarter end, we have grown our delivery system installed base to over 19,000. I would like to note that due to factors such as trading, trade-up various system price point and our international distributor model, our total delivery systems bigger does not direct correlate to sales.

In summary, we're very pleased with our performance so far this year. We have confidence that our proven operating model and key strategic growth initiatives will drive long-term profitable growth that will increase even greater shareholder value. With those comments, I'll turn the call back to the operator to open it up for questions. Thank you.

(Operator Instructions) Our first question comes from the line of Oliver Chen with Cowen.

Brent and Clint, congrats on all that you've accomplished. The connected device, the 2.0 connected device sounds quite exciting. How should we think about how that may be launched throughout the year? And also, any guidance in terms of your thoughts on revenues in terms of the quarterly cadence. Also, the Glow & Go and the home device, would love to hear any initial learnings and how you're thinking about pricing and more broadly, how this fits into the HydraFacial ecosystem? And then third, Liyuan, a modeling question, just the guidance was encouraging. Was it the Americas that drove the most upside, would love context on that as well as helping us understand some of the factors you mentioned on supply chain and inflation and which factors maybe outside of your control as we monitor those risks across the sector?

Sure. Thanks, Oliver. Appreciate the kind words and the question. If you look at our organic growth on the HydraFacial system and our consumables, it's really been very, very solid. And those products work. And they feel good, and you get an immediate result. What we're doing is taking our technology now from analog to digital. And I think that's appropriate given we have over 19,000 providers out there. We're launching the Glow & Go, which is an exciting home device, really where you can take HydraFacial on the road with you. And so we're doing what I think best-in-class brands do these days. And that's connecting the consumers with our professionals, the expectations with the company to ensure that we can meet them where they live, work and play.

The Glow & Go, we've had really good alpha and beta testing. We're super excited about it. We don't have meaningful revenue in the model. So I would say, this is test and learn and to build up with our community. Projects SYNDEO, we're very excited, and we remain on track with that product to be in H1 of next year. And as Liyuan mentioned, there's going to be a lot of new product introductions. We expect a lot of trade-in, trade-up activity. And most importantly, we're just really, really excited about going to the next step in what we've committed to for the last several years in connecting The Beauty Health community. So I'll turn it over to Liyuan for the modeling question.

Yes. I'll just quickly interrupt Clint and Oliver. And just I saw the SYNDEO device in the office last week and it's slick. It's going to be a really nice new launch in the first half of next year.

Oliver. So on your question, in terms of the guidance, we actually mentioned the fact that the delta variant really impacted some of the regions, especially with APAC. So there is that impact that we factored in as we look forward to Q4. In terms of the margin and supply chain, what we're really trying to say is for the third quarter, there's some temporary impact because as you can appreciate with all the 4 distributors, they have their inventory and the balance they're carrying is higher as they were functioning as a distributor. And that's going to go away as you think from Q4 and go forward. However, when it comes to supply chain, when it comes to the actual shipping costs, all of that, just like everybody else in the market, we continue to see pressure that's going to impact us for going forward.

And Brent and Clint, as you think about Beauty Health of the platform, what should we know about in terms of what's on your mind for framework as you think about opportunities and you're well capitalized and you have a lot of expertise in terms of this major structural change with the consumerization of health care.

Yes, I think that's exactly right, Oliver. And I think as we -- as we've always maintained, as we think about the perfect M&A candidate or candidates, it's a product or brand with a high NPS score, Net Promoter Score. It allows us to get leverage on our call point, most specifically with the esthetician. That's someone we really want to grow with and support. We have a lot of loyalty there, and it's something that, that would give us a lot of leverage with our existing cost and infrastructure, and then ideally something that would add accretion to the P&L. That being said, obviously, no deal is a perfect deal. Some deals are better deals, some deals are not. So we're pretty fluid. But there's a lot of opportunities. We look at a lot of different things, but we don't feel any pressure. We want to do it in a very disciplined way. But we believe that's a true growth lever for us in the future, absolutely.

Our next question comes from the line of Steph Wissink with Jefferies.

Clint, it was better seat to see the announcement today. You'll definitely be missed. My question for you is, I think in the prepared remarks, the word accelerated was used a number of times regarding marketing, R&D investments, the rollout of international, the buyback of the distributorships. So can you talk a little bit about how much of the revenue upside has afforded you to accelerate the investments in the business? Any of that a pull ahead from what would have been investments in later years? And then as you think about the growth that could come behind that, where should we see the prioritization of growth? Do you expect international to be the single biggest growth driver? Or are there other attributes of the model we should be watching over the next couple of years?

Yes. Thanks, Steph, for the kind words. I'll handle the first part and then maybe hand it to Brent for the second part. If you remember, when we merged with Vesper back last December, we thought that we were going to see acceleration got hit by the delta variant closures, and I think Liyuan and the team done a great job providing guidance on how we manage through not just the pandemic, but we're thriving out of it. So what we've committed to investors is that we wouldn't spend on marketing and infrastructure and adding sales people if we didn't have visibility to driving growth. So I think what you see in the Q3 results, hope you've seen in our first 2 quarters is feathering in those investments, really simply putting down more placements, driving the innovation to the 2 new products you're seeing, and we've increasingly spent on marketing and global infrastructure to get ahead of the growth.

So it's very consistent with what we laid out last December when we did the pipe very consistent with, I think, the 3 quarters now that we've reported. And I think the team has done an amazing job working through its still a challenging situation. So really good tailwinds, really disciplined expense management being incredibly opportunistic where possible and hopefully, that's what we've seen in the Q3 results. So no pull forward on revenue, just to be clear. It's really just spending against those 3 pillars that we laid out back almost a year ago now.

Yes. And I think as you think about growth, I mean, one of the things I find the most exciting about our company is, there are so many levers of growth. And for us, as Clint said, it's about being very thoughtful and disciplined in how to invest behind those levers of growth because there's so many of them. Clearly, international is a huge opportunity for us, and you see that in this quarter, particularly in Asia. And that's despite flare-ups in delta variant and COVID closures. New products is going to be a strong source of growth for the future. And frankly, M&A is a completely unplanned source of growth. But given the firepower we have and the cash we have on the balance sheet, that could be a huge source of growth for us in the future. Tried to predict which one is going to be the greatest is hard to say, because it's like asking which kid you like the most. But clearly, international is probably the most baked opportunity or the most advanced or mature opportunity for growth for us.

That's helpful. And Liyuan, can I ask one follow-up question. I think you mentioned higher pricing on delivery systems in the quarter. Help us think through some of the inflationary pressure and the power you see in your model to price into some of that inflation, whether it's on the systems or the consumable side.

Steph, yes. So we actually shared that previously as well. We have a natural increase in ASP, partially because of the strong demand and really the mix. Historically, we were able to pass on cost and also increase in price, and we're certainly thinking that through as we go for next year as well. So that's truly baked in for the numbers, the guidance and as we think through it for the future as well.

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

Clint, it was great working with you, and you'll certainly be missed. So first for us, can you just talk a little bit about the growth in Delivery Systems that you saw? Is there any channel that stood out in the quarter as being stronger than others? And then how are you thinking about contributions from each channel going forward, especially as you continue to grow your various partnerships?

Yes, it's great, Korinne. Thanks for the nice words. If you think about what we've done in the last 3 years, it's been quite a journey, but we've learned that to drive system placements, we need to drive consumer demand. So we've kind of flipped this upside down and have really worked to go from just a pure B2B play to a B2C back to B. And so I think around the world, as we're traveling with our distributors and our sales people, we're finding that it's easier to sell HydraFacial units because more consumers are asking for it by name, and we're filling the existing ones up, so people are buying multiple systems. So that's really exciting. I think it's a testament to where the brand is starting to get a really nice tipping point.

In terms of the channels, they're all growing really nicely and there's new channels emerging as we see experiential Beauty Health happening. That's I think results as a result of our relationship, not just the support, which is incredibly strong, but with Nordstrom and John Lewis and Laser Centers of Australia, really excited about these new emerging business partners. The one that's still depressed is our retail channel. And I think that's really you see flare-ups and as you see restrictions from -- government restrictions. So I think if anything, the company as we emerge from the pandemic and with the great news we've had in the last week, we should see all of these channels growing and really excited about it. It is important, though, the average HydraFacial consumer, if you remember, gets treatments in 3.2 different locations, so we haven't lost those consumers. We just have moved into different places and can't wait to help our retail partners get back on a strong footing.

Great. And then -- so you've invested a ton in consumer awareness from GLOWvolution tour in social media, is there any way that you can quantify how these investments may be translating to new customers or increased spend from your current customers? I understand it's still may be early days in these, but is there any color you can provide, that would be helpful.

Yes. Well, we do know the data for the last several years has said, look, if some HydraFacial has had high single-digit awareness. When people get it, 2/3 of them stick and 1/3 becomes super consumers. So several years ago, we started the world tour during the pandemic, we designed that very cool semi that's called GLOWvolution. And what we find is whether we're in Dubai in a pop-up shop or London in a pop-up shop, or one of our GLOWvolution stops, the data looks the same. 85% of the people that we drive to 1 of our physical activations have never had HydraFacial. And upon leaving 85% they wanted to get a HydraFacial. And so that has worked for us incredibly well.

So we track the ROI on all of these events. I think increasingly the company is getting more sophisticated about the CAC-to-LTV relationship. But it's safe to say we would be doubling our marketing spend, particularly in these types of activations if we didn't think it was well worth it. So we're not prepared to give the secret sauce, so to speak. But I think it's really targeted very surgical like marketing that drives physical sales, drive consumer awareness and that turns into consumable sales because they're going to our placement. So it tends to be a really great ecosystem that, that we found is very supportive. It's marrying the consumer with great expectations that are well trained through HF CONNECT and just gave them to experience the benefit of the treatment.

Our next question comes from the line of Jon Block with Stifel.

Maybe just to start, the midpoint of the 2021 guidance, I believe, implies a flat 4Q and 3Q. And usually, we see a 4Q seasonal uplift. Maybe if you can just talk to that a little bit? Is it conservatism? Just also talk about what would take you to arguably the high end of the range versus the low end. And maybe just as a tack on to that, Liyuan, is some of that a function of what you've witnessed in APAC? And are some of those APAC COVID headwinds beginning to abate here as we work our way throughout the fourth quarter.

Jon, yes. So I think there's definitely point of view when it comes to APAC market because that's the market impacts us the most significantly when it comes to the third quarter. You probably saw the news as well what happened to Shanghai Disney? I think China, as a market, there's a lot of impact if the trend were to go the worst side of the equation. We're also starting to see some ease up in Australia, but there's also other countries in APAC region having a worsening trend. So overall, we did take that into consideration. We have shared with you previously; we track our open and close pretty closely by region. So we built that into our guidance, if that makes sense.

Okay. Yes, it certainly does. And maybe I'll follow up with you a little bit more offline there. Just to pivot and sort of a follow-up question. The global supply chain pressures that you guys mentioned, I don't think it impacts 2.0. I think you called it out 1H '22, but does it impact on how you roll it out? In other words, measuring the cadence of the rollout, we've done some checks and there seems to be a really high want in the field from your current installed base to possibly upgrade. So just as we think about those supply chain pressures, will you be able to fill all demand, call it, new and potential upgrades in your opinion as early as the first half of next year?

Jon, yes, so as you can appreciate, we're pretty thoughtful in terms of making the main delivery systems, especially we shared with you historically we rolled out, call it, 3,500 4,000, right? So from a numbers point of view, while the supply chain remains to be constrained for all of us, we can plan ahead. So a lot of the real supply chain issue we're seeing it's more when it comes to shipping or delay more so than shortage, if that makes sense.

It's not a component issue necessarily for us, so we should be okay.

Our next question comes from the line of Amit Hazan with Goldman Sachs.

This is Phil for Amit. Maybe my first 1 to follow on what Jon was just asking the line of questioning. We're starting to see case rates increase in parts of Europe, some of the key countries that you all called out as areas of strength in this quarter. I'm just wondering if you can kind of follow on the APAC logic and talk about what you're seeing at this point from movement restrictions or otherwise in Europe that might be implied in the 4Q guidance?

Yes, Jon (sic) [Phil], this is Clint. Look, as you know, I mean, we've been through the worst -- hopefully, the worst of the pandemic. We've managed through it. We've never let that be an excuse. We just tried to shoot straight with the market on what our visibility is. But I think there's no doubt that the macro trends of health and wellness and certainly the benefits that we have as macro tailwinds not go away. So even when we see markets like Japan that shuts down or Australia shuts down, we see demand come back. And because we have such a -- of omnichannel approach, geographic diversity, no concentration, I'm obviously going to be handing the keys over to Brent and team here, but I feel really comfortable that we've gotten very good at managing through this. So I don't think there's any reason to overthink that or to be too optimistic about we're giving you good guidance based on what we see out there in the marketplace.

Okay. That's fair enough. My second question was around utilization of the systems broadly. It's more of a broad question, I think about the seasonality that you anticipate in the business going forward. But as part of the talk track today, it sounded like there were a number of factors that were kind of impediments to what would have otherwise been even stronger growth. The crude mask, just treatments divided by systems looks like it stepped down sequentially. Is that something that we should be anticipating going forward that kind of 2Q to 3Q seasonality step down, and then recovery in 4Q? Is that what you all see in underlying business, or are there some one times or otherwise that we should be thinking about?

Yes. So, I'll handle the high level first. As you're well aware, Q2 and Q4 tend to be stronger than Q1 and Q3. That has been a bit unusual because of the pandemic and the shutdowns and also, we have a market that's growing outside the U.S. very fast. So I wouldn't -- we're also laying down a lot of new systems, which take a while to mature. So when you land down a lot of new systems, and you've got a little bit of an abnormal cycle because of the pandemic. I think it will normalize over time, and we'll be prepared to give you more granular information at that time.

Our next question comes from the line of Kyle Rose with Canaccord.

I echo all the sentiments regarding Clint's departure, so congratulations on everything you've accomplished. I wanted to maybe just touch a little bit more on the acceleration comments that I think was asked previously. And the one thing, when I look back to where guidance started the year and where we're at now, I mean, you've obviously had tremendous upside on a revenue perspective. And you've reinvested the majority of that back into the business. Obviously, you're raising EBITDA here a little bit. What I'm trying to understand is, how should we think about leverage from a bigger picture perspective or over the medium term? When we think about some of the investments you're making with the global ERP and CRM system. Just trying to really understand how much is onetime in nature versus going to be an ongoing expense line we should be thinking about.

Yes. Kyle, I'll start -- thank you for the kind words. I'll start with the first part and then hand over to Liyuan. From the start of this, from the pilot to the go public lease back, we really wanted to be clear to investors that this was a growth story that there were investments that we felt would accelerate shareholder value and that we felt like we could set up a really nice revenue predictability and expense predictability that was heavy on investment. Traditionally, this company or historically has been very CapEx light. So if you remember, we agreed that we -- or we signaled investors we wanted to double the marketing spend and consumer wariness drives revenue. We wanted to get the new products out, because those have been stopped as we went into the pandemic. So we have 2 new exciting products coming. And then we wanted to build out the international infrastructure. And then we've said we focus on M&A.

So I think what Liyuan and I have committed to is that, for the next 18 months to really think about this being a growth story. Historically, under private equity management, we ran this at 25% to 30% EBITDA. There's no reason this company couldn't be run to really produce cash flows in that same level in the future. But this is the growth story out of the blocks, and hopefully, we've delivered upon our commitments. And now we focus on that fourth pillar. So that's the intent. I don't know, Liyuan, if you want to add [anything]?

Yes. Kyle. So to add to that, I think we mentioned that briefly prior, if you really think about this current year, R&D has been a pretty big focus, and we had mentioned we were buying speed, right, because we also wanted to speed up the process, accelerate it, and then we can start to test and learn some of the new product lines. I think Clint has also shared, usually we're at a 3- to 5-year cycle when it's a really significant launch of a product, but then we're going to be active. So if you really think about this here, a big chunk of the R&D investment, you don't necessarily see the revenue until the following year. By the same token, marketing, that will continue as we see how we get a return on investment. For international, as you mentioned earlier, it's a cloud solution. There's some investment into these ERP and other space and people were investing heavy this year, which would really benefit the year after and go forward. We will anticipate the continued investment go forward for the next couple of quarters, then we should be at a pretty good position to really leverage for the future.

That's very helpful. And then we spent some time already talking about SYNDEO and Glow & Go, but I wanted to touch on just if we can go back to Keravive and Epicutis, I'm not sure if I'm pronouncing that right. But when I think about that, you're moving beyond the face into the scalp and now you're moving into the Décolleté and the Neck. Trying to understand what uptake has been of both of those products? And just how you expect to see utilization trend from a longer-term perspective when we think about moving beyond just the facing into some of those other areas?

Yes. Thanks, Kyle. I'll start with the first part. I mean, I think 3 steps, 3 events best in your life. HydraFacial has become really increasingly synonymous with kind of owning the healthy skin category. We plan to extract the high grade, and I think the team has done a really nice job increasing consumer awareness about this in the first place to go. And I think Beauty Health is a natural extension of trying to increase that influence. If you look at the data, and I know you know this, healthy scalp is as big a market, Keravive is a highly differentiated product. It works just like our skin health products and medicine and product that makes everything else better and healthy scalp is key to healthy new hair growth. So I think the team is really excited about it. And I would consider Keravive just the first product and a portfolio of products for healthy scalp.

Epicutis is new. I think, as we look to improve the system improve, the ingredients launch new products. Skin is your largest organ, it's all over your body. And so it's a really nice natural extension to the Décolleté. And Décolleté, I think the team is really excited to have Epicutis really proprietary product with really very good results. And so early days, but certainly, the market data would say that if we execute upon it, it should be very promising areas of opportunity for the company.

I think I'll leave it to Brent and the team on what future guidance is, but I felt it was important to deliver this company with a strong team, a strong product offering, a good market presence, and I'm sure he'll be here to provide you further guidance on it.

Yes. I'll just chime in, and thanks, Clint if you look at the numbers, we provided in the de-SPACing or in the SPAC IPO or bridge data, we well surpassed those. And the company is in a very strong position. We're very excited about future growth. But we're going to provide that guidance in the normal course, and we'll be doing that in the next, I guess, probably 2 months or thereabout.

Okay. And can you comment on how churn is looking as your number of systems continues to increase? Is that churn increasing to, or is churn staying relatively stable?

Linda (sic) [Kyle], so far, it's been relatively stable and consistent.

Yes. And the next thing, if you look back, the product has been around since '05, it's been consistent historically. So I don't think the addition of newer higher volume production, I think, is -- and rep productivity should be a sign of strength of the brand, not concerned. So nothing has changed so far.

And then finally, just on the M&A strategy. I was just curious if you wanted to take advantage of the channels that you're strong in. So would you consider acquisition of, say, like a derm cosmetics brand that was distributed to doctors' offices? Or do you think you want to stick more in the device area?

Yes. I think we want to take advantage of the distribution we have. That is the call point of the esthetician, whether she sit in a doctor's office or a spa or a hotel or retail channel, it's really that call point. And so it could be skin care. It could be a device. It could be anything that really supports her practice and her growth and help sure benefit her customer. That's how I think about it at a high level for sure.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Brent Saunders for closing remarks.

Yes. So thank you, operator. Just want to kind of end and say how pleased we are with our results for the quarter and how excited we are for our future as we focus on executing our next phase of growth. We really thank everyone for joining us on the call today, and we look forward to keeping you all updated.

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