Beauty Health Co (SKIN) 2021 Q4 法說會逐字稿

Greetings and welcome to The Beauty Health Company 2021 fourth quarter and fiscal year 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.

Good afternoon, everyone. Thank you for joining The Beauty Health Company's conference call to discuss the company's fourth-quarter 2021 financial results, which we released this afternoon and can be found on our website at investors.BeautyHealth.com. Also available on our website is an investor presentation that will be referenced during this call.

With me on the call is Brent Saunders, Executive Chairman; Andrew Stanleick, President and 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 casual 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. Reconciliation of these non-GAAP measures to the most comparable GAAP measures 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 our fourth-quarter and full-year 2021 results. I would now like to formally introduce Andrew to all of you and welcome him to the BeautyHealth team. We are honored to have him join the company at such an important time in our history. Andrew's track record of success, extensive knowledge of the beauty and luxury retail industries, digital marketing expertise, and international expertise, are invaluable as we expand the BeautyHealth category and build our platform. I will briefly turn the call over to Andrew.

Thank you, Brent. Good afternoon, everyone, and thank you for joining us today. I joined the company just over two weeks ago, and I wanted to start by thanking all the team at BeautyHealth for the warm welcome that I have received. I have spent my first two weeks on a listening tour, meeting associates and customers. And what has struck me is the palpable excitement that everyone shares regarding the tremendous opportunity ahead of us. I am proud to join this talented team and excited to lead the next step of the journey in this category-creating company.

I joined at a pivotal moment in the company's growth trajectory, and I am fully aligned with Brent and the Board's strategic growth initiatives and thrilled for the opportunity to execute against this dynamic strategy the team has implemented. By way of introduction, I am a beauty industry veteran with over 25 years of experience in beauty and luxury retail, specializing in brand development, digital transformation, and multichannel distribution, including B2C. I am a global citizen, having lived in eight countries across four continents, including seven years in Asia.

I started my career at Unilever in sales and marketing before spending 13 years at L'Oreal. I then spent five years leading Coach's business in Southeast Asia, Pacific and Europe, before joining Coty in 2017 to run its Europe business. Over the last four years, I led Coty's America consumer beauty and luxury divisions. Additionally, I served as the global CEO for Coty's joint venture with Kylie Jenner's beauty business, and I helped Kim Kardashian West oversee her KKW beauty business.

I am grateful and honored to be the BeautyHealth CEO at such an exciting time for the company. I look forward to leading the next chapter of growth as we build upon our impressive platform and global community. And with that, I will now turn the call back to Brent.

Thank you, Andrew. I'd like to thank our employees, providers, and the global BeautyHealth community, who remain resilient and passionate about our products and services. This community is key to our performance and we will continue to invest in and nurture its growth.

During today's call, I will provide details on our fourth-quarter and full-year 2021 performance. I will then turn the call to Andrew to discuss our growth strategies and 2022 guidance. Liyuan will follow with more details on the fourth-quarter results and our 2022 guidance.

To start, I want to spend a moment on page 5 to highlight the key takeaways from our results. First, our significant net sales growth demonstrates the strength of our brand. We are very pleased that we exceeded our guidance, growing by 118.3% compared to 2020 and 56.2% compared to 2019. This marks four quarters of beats despite the pandemic. Second, our fourth-quarter gross margin expansion of 1,210 basis points on a GAAP basis and 870 basis points on an adjusted basis, showcases our ability to generate fixed cost leverage on our infrastructure investments and rapid net sales growth.

Third, the planned execution of our strategy remains in place. We are thrilled (technical difficulty) Andrew as our CEO, and he is aligned with our existing strategy, ensuring a smooth transition. He will take you through our master plan in a moment. Fourth, the growth opportunity remains significant. We remain as enthusiastic as ever about the opportunity ahead of us. Andrew and Liyuan will walk you through our outlook in more detail.

Lastly, 2022 is expected to be our final investment focused year in which we build the global infrastructure needed to fully capture the opportunities in front of us. We are pleased with the progress of our build and expect to begin to realize the benefit of these investments next year.

Turning to our financial results for the quarter, net sales were $77.9 million, marking the fourth consecutive quarter of a beat and a 56% increase compared to the fourth quarter of 2019. Our growth was primarily driven by performance in the medical channel, where the end of the calendar year typically stimulates high activity as providers exhaust what is remaining of their capital budgets. In the nonmedical channel, we saw Sephora, our number one customer, reopen and offer Perk by Sephora. And we expanded our presence in the channel via partnerships with Nordstrom's and Ulta.

Adjusted EBITDA was $8.5 million, driven by strong net sales growth, gross margin expansion, and disciplined expense management. We drove our fourth-quarter performance with strategic investments, including selectively spending on digital marketing initiatives, investing in HydraFacial CONNECT, and hosting the GLOWvolution event in New York City. All of these initiatives drive greater connections between our consumer and providers, creating the virtuous cycle of community engagement and long-term sustainable growth.

Importantly, we also wrapped up the foundation for a digitally connected community, preparing our new delivery system, Syndeo, for imminent launch. Syndeo represents a crucial milestone in our path to meaningfully evolve the consumer and provider experience, and I look forward to sharing more updates in the future.

Overall, we are incredibly proud of our accomplishments this quarter and are even more excited about the opportunity ahead. I will now turn the call over to Andrew who will walk you through our strategy for 2022 and beyond. Andrew?

Thank you, Brent. I'd like to turn to page 6 of our presentation, which contains our master plan. We are a category creator. We deliver BeautyHealth experiences, reinventing our consumers' relationship with their skin, their bodies, and their self-confidence. Our master plan is built upon five strategic growth initiatives that I will walk you through now.

First, we plan to expand our footprint by selling innovative products and connected experiences to our BeautyHealth community. Syndeo means connect in Greek, and this product is a milestone for us in connecting our community. The imminent launch is a significant technology upgrade from our existing HydraFacial delivery system, evolving from an analog to digital by collecting data to fully understand consumer and provider behavior. With this data, we'll have meaningful opportunity to boost engagement and utilization via storytelling, branding, and gamification.

Second, we are investing in our providers as we enhance the overall consumer experience. A great demonstration of this pillar is the HydraFacial CONNECT, a unique activation and engagement program that empowers BeautyHealth professionals to expand their knowledge of our products and experiences, industry, and marketing. We will continue to invest in this initiative and others to turn our providers into brand evangelists and advocates, providing first-class experiences to consumers.

Third, we are nurturing our relationship with consumers to build awareness and drive them to our providers. We will pursue high ROI investments within our golden triangle of sales, marketing, and training to catalyze our presence in B2C channels and expand our reach to consumers where they live, work, and play. These investments to bolster our trusted community include a focus on our growth marketing efforts, where I intend to leverage my extensive network and experience to build campaigns in paid social, influencer, and content marketing. We'll supplement these efforts with events in HydraFacial experience centers globally and GLOWvolution, both of which have proven efficient in generating awareness.

Fourth, we are building the global infrastructure to support our growth ambitions and connected platform. Similar to last year, we refer to 2022 as a heavy investment year as we complete the infrastructure build needed to support the significant growth opportunity ahead of us. These investments create degrees of operating leverage we plan to capture to accelerate our profitability in the future. Next year, we will focus on climbing towards our historical adjusted EBITDA margin levels.

Finally, M&A. In the few weeks I've been here, I have grown increasingly excited about the potential acquisition opportunities available to us. We will use M&A in a disciplined manner to expand our platform, focusing on financially accretive, differentiated products that leverage our BeautyHealth community.

At a high level, we believe this strategy translates to another year of double-digit growth in 2022, with net sales expected in the range of $320 million to $330 million. We expect adjusted EBITDA in 2022 to be approximately $50 million. Liyuan will discuss our 2022 financial guidance in greater detail shortly.

In conclusion, I am very excited about leading this company and where we are heading. The platform is well-positioned to capture the white space between medical, aesthetics, and skincare. With the imminent launch of Syndeo, we will seamlessly connect our BeautyHealth community, bringing a level of visibility into consumer and provider behavior we have never had before. Combined with a multichannel and growth marketing focus, we are setting ourselves up for a memorable 2022.

I will now turn the call over to Liyuan for a discussion of our fourth-quarter performance and additional details on our financial outlook for 2022. Liyuan?

Thank you, Andrew, and thank you, everyone, for joining us this afternoon. Before I discuss our fourth-quarter results and full-year 2021 results, I want to officially welcome Andrew. I am thrilled he has joined the team and know his global leadership expertise across beauty and luxury, as well as his innovative and proven digital marketing capabilities, will be critical as we build BeautyHealth for the next stage of growth. I also want to thank our dedicated team across the globe for their continued hard work. Our success in 2021 would not have been possible without the commitment of our employees and providers.

I will discuss our fourth-quarter results, touch on our balance sheet, discuss our full-year 2021 highlights, and close with details on our 2022 guidance. Note that I will make sales comparisons to our fourth quarter of 2019, as we believe it is a more relevant comparison due to the COVID-19-related market closures in 2020. Before discussing fourth-quarter and full-year 2021 results, I wanted to take a moment to provide a brief overview of the HydraFacial business model, as shown on page 8 of our presentation.

We employ a razor/razor blade model. So we start by selling a delivery system, the razor, and associated consumables, the razor blades, to providers. As providers perform HydraFacial experiences on consumers, they exhaust their supply of consumables and reorder, driving growth in our consumables revenue segment.

The purchasing decision for delivery systems generally boil down to three reasons. The most common reason is providers buying their first HydraFacial delivery system. Second, they see our existing providers return to us to purchase additional systems so they can increase the volume of HydraFacial performed in their practices. Last, we also have providers, treaty and another branded delivery system will upgrade their previous generation delivery systems for the current model, which we call trade-ups. Trade-ups have historically represented low single-digit percentage of delivery system sales for the year.

I'd like to spend a moment to explain the key performance indicators at the bottom of this page, which we plan to disclose quarterly going forward. We use these KPIs internally to measure the health of our business. First is our delivery system ASP, or the average selling price of a system sold during a given period. Second is delivery systems sold, which measures the number of systems sold during the given period. Third is our installed base, which measures the number of systems actively performing HydraFacial treatments. As disclosed in the press release, we sold 6,191 delivery systems in 2021 compared to 4,080 in 2019, an increase of over 50%. Our installed base stands at 20,399 as of December 31, 2021.

I will now turn to our fourth-quarter results on page 9. As Brent mentioned, we are very proud of our strong performance this quarter and how we navigated the headwinds related to COVID. Our results for the quarter and full year further demonstrate the strength of our platform, as well as the diversification and flexibility in our business model. Our products and experiences continued to resonate worldwide, driving strong performance across geographies again this quarter, even in APAC, where select markets were closed.

On the top left of the page, you will see net sales of $77.9 million, increased 105.6% from last year's COVID impacted sales of $37.9 million, and up 56% from $49.9 million in fourth quarter 2019. This meaningful increase was driven by growth in our delivery systems, which expanded our installed base to 20,399 as of the end of the quarter and continued growth in our consumables. We sequentially increased the quarterly number of delivery systems sold throughout the year, totaling to 6,191 for 2021. It is the highest number of systems sold in a year in our history.

Now I'll share a few details from our three regions. Fourth-quarter sales in Americas region increased to $50.4 million compared to $26.9 million a year ago and grew 47.5% from 2019. Our strong performance in the US was driven by continued increase in our sales productivity, fueled by strong conversions from our marketing-driven leads. Our last stop of GLOWvolution in New York also helped fuel the growth.

Furthermore, we are encouraged by growth in LatAm, where we are pleased to now be directing parts of this market through the acquisition of our distributor in Mexico. We also saw growth from other distributor regions and are encouraged by the early trends we're seeing in Brazil.

EMEA generated fourth-quarter net sales of $15.5 million versus $6.1 million in the prior year and expanded 84.2% from the fourth quarter in 2019, driven by strength across our key markets, especially Germany, the UK, France, and Spain. In EMEA, our fourth-quarter digital marketing campaigns yielded strong results, as did our pop-up events in key markets.

Turning to APAC, our net sales of $12 million increased almost 147.3% compared to $4.8 million in 2020 and 64.1 from the fourth quarter of 2019, primarily driven by growth in China and Australia, even in the face of restrictive COVID lockdowns. While we have seen sequential improvement from Q3 to Q4 of 14.2%, countries such as China, Japan, and Australia continue to enforce citywide shutdowns. The restrictive lockdowns continued into January and February, especially in China, with a zero tolerance policy as they prepare for the Winter Olympics and the busy Chinese New Year travel period. Despite the temporary COVID headwinds, China remains a key strategic market where we see significant opportunity.

In Japan-Australia, we see promising trends and loosening of the restrictions in February. We are continuing to focus on our system rollout in APAC, yielding commercial infrastructure and expanding our presence in the medical and nonmedical channels.

Overall, demand remains strong across all channels and geographies. Awareness of the HydraFacial brand continues to improve as we expand our footprint and build upon our marketing initiatives. We are well-positioned to capitalize on the strong global interest in BeautyHealth and further expand the category we created.

I want to briefly touch on the seasonality pattern of our business with the chart on the top right of the page. As a reminder, our historical seasonality usually starts with a low Q1 and sequentially builds up to a high-volume Q4, which is historically driven by year-end capital expenditures in the US medical channel. Sales in the first quarter typically show a sequential decline in the mid to high single-digit range from Q4, due to lower productivity related to the post-holiday period and field marketing activation events in January. The sequential growth returns in the second and third quarters as we ramp up our marketing spend. The fourth quarter is usually our biggest quarter for the year as the trends I previously mentioned serve to boost our productivity.

As shared previously, marketing investment has a direct correlation to sales, especially with digital and event-driven promotions. The bottom right chart shows our adjusted EBITDA by quarter throughout 2021. Given the pandemic, we did not invest into marketing until the second quarter when vaccines became more widely accessible. We saw a significant buildup in Q3 and ramped it back down in Q4, given Omicron surge. Excluding any COVID impact, the underlying growth trend continues to be very strong across all regions. Quarterly comparisons versus 2019 quarters is not indicative of future growth trends given the growing mix of nonmedical channels, global expansion, distributor acquisitions, and COVID impact on 2021.

On the bottom left of page 9, our GAAP gross margin was 72.9%, up from 60.8% last year. On an adjusted basis, our gross margin expanded 870 basis points year over year to 76.5% as we generated fixed cost leverage, improved selling prices for our delivery systems, and continued to pick up margin in the regions with our acquired distributors. This was partially offset by higher supply chain and logistic costs.

I am now turning to page 10. While enhancing our margin structure is an important focus, we expect global supply chain headwinds and inflationary pressures to weigh on our margins in 2022. We anticipate higher shipping costs continuing throughout the year, partially offset by an accretion in margins related to acquired distributors, as seen in Q4 2021.

SG&A expenses in the fourth quarter were $62.1 million compared to $26.9 million for the fourth quarter of 2020. Breaking this down, selling and marketing increased by approximately 5.6 percentage points to 47.6% of sales compared to 42% in the fourth quarter of 2020. This increase was driven by greater sales commissions, increased global marketing spend, and higher personnel-related expenses as we grow our sales force across the globe to fuel future growth.

We continuously assess our marketing initiatives to maximize the efficiency of our spend. Similar to prior COVID surges, we selectively reduced our marketing spend in certain markets based on severities throughout the quarter. Additionally, we continue to invest in training programs such as experience center training and global connect programs. We will continue to focus on optimizing our investment in sales, marketing, and training, particularly as we launch Syndeo.

Touching on R&D, we invested $1.9 million in the fourth quarter of 2021 compared to $0.9 million in the prior year as we invest in our product development and innovation pipeline. As previously mentioned, innovation is a key tenet of our strategic investment philosophy, enabling us to create differentiated products that drive rapid expansion and share the BeautyHealth market opportunity.

Our G&A expenses of $25 million -- the increase in G&A expenses was driven by $3.8 million of non-cash stock-based compensation, non-payroll-related public company costs of $1.5 million, which includes D&O insurance, stocks compliance, and additional audit and tax-related services, as well as higher personnel-related expenses due to increased global headcount. We expect such public company cost to continue.

During the quarter, we increased our investment in building our international infrastructure. As previously shared, we successfully rolled out the first phase of our global ERP platform in November, including CRM and new B2B and B2C platforms. The global ERP increases our agility and improved productivity by leveraging technology. We will continue to expand and integrate our ERP globally over the next few quarters.

In addition to the GAAP measures discussed, adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the quarter, adjusted EBITDA was $8.5 million versus an adjusted EBITDA of $3.6 million in 2020. The increase in our profitability was the result of higher sales and gross margin improvement, partially offset by increased commission and bonuses, elevated marketing and scaling spend, and higher headcount.

And now onto the balance sheet highlights on page 11. We ended the quarter with approximately $901.9 million in cash and cash equivalents. At this level of cash, we have ample dry powder to support our rapid expansion, as well as pursue a disciplined M&A approach that capitalizes on the significant opportunity between aesthetics and beauty in this large and growing category.

During the quarter, we completed the redemption of our outstanding public warrants, eliminating a remnant of our SPAC. After accounting for the result of this redemption, we have approximately 7 million private warrants outstanding, the vast majority of which are held by Brent, and the rest by others from our initial investor group.

We continue to carry $750 million in convertible notes on the balance sheet. We erased this debt in the third quarter of last year to have dry powder for strategic acquisitions, among other uses. While the conversion price of the debt is $31.76, we used the portion of the proceeds to enter into a capped call purchase agreement that protects against dilution up to a stock price of $47.94.

During the quarter, we closed a $50 million revolving credit facility for our US operations. The use of proceeds for this line of credit is to fund our short-term working capital requirements and general corporate purposes. The facility allows for the flexibility to pursue M&A and does not encumber our O-US operations. Our convertible notes are excluded from these leverage covenants. The undrawn commitment fee of the facility is less than $200,000 per year. Finally, weighted average shares outstanding were approximately 146.3 million in Q4 2021 and our current shares outstanding is approximately 150 million.

Flipping to page 12, we're very proud of what we accomplished in 2021. Since going public in May, we went direct in seven new countries, including acquiring four distributors; added $892.4 million in cash to our balance sheet; implemented Phase I of our global ERP system; began global network optimization with sourcing, production, and logistics; had 10 research analysts launch coverage on our stock; and delivered four quarters of revenue beats as we increased the business momentum and gained near-term clarity amidst the pandemic.

We finished the year with $260.1 million in revenue, a 56.2% increase from 2019, 74% adjusted gross margin, and 850 basis-point increase from 2020; $32.7 million in adjusted EBITDA. While we historically averaged 3,500 to 4,000 delivery systems sold per year, in 2021, we sold 6,191 new delivery systems, a company record and remarkable performance in light of pandemic-related closures. Our installed base currently sits at 20,399 delivery systems, and we remain excited about our ability to expand our footprint in the future.

Turning to page 13, I will now share more details on our outlook for 2022. For the year, we expect net sales in the range of $320 million to $330 million, barring any deterioration related to COVID. While we are beginning to see a waning impact from the Omicron variant and remain cautiously optimistic, we do expect pressure from select market closures during the first quarter, particularly in APAC. This pressure has been factored into our 2022 net sales guidance.

We're providing an adjusted EBITDA outlook of $50 million. We continue to expect our investment to remain elevated this year as we build our platform for future growth. Next year, we believe the benefits of these investments will position us for future growth while we focus on optimization to our profitability, climbing towards our adjusted EBITDA margin levels.

I will now touch on some of the key drivers behind our guidance. We plan to launch Syndeo in the first half of 2022 and anticipate a high single-digit ASP increase on our delivery systems and consumables. As we have mentioned, a key initiative is the profitable land grab in rolling out delivery systems. In addition to expanding our footprint, we also anticipate a portion of our providers will upgrade their existing delivery systems to Syndeo. While the ASP on upgrades is lower than the ASP of new delivery systems, the unit economics on upgrades remain profitable to us, and we expect the sales from upgrades to be accretive to EBITDA and earnings. We anticipate a temporary potential low to mid-single digit impact to our gross margin due to lower ASP if we experience an elevated mix of delivery system sales from upgrades.

On the cost side, we are not immune to global supply-chain challenges and inflationary pressure on raw materials, shipping, and labor costs. Lastly, we anticipate capital expenditure of up to $20 million in 2022 as we continue to build our regional headquarters, expand on our global network optimization and technology platforms.

In conclusion, we're extremely pleased with our performance for the fourth quarter and full year 2021 and we're excited about our momentum heading into 2022. 2021 was a historic year for us, and we look forward to taking advantage of the compelling growth opportunities in 2022 and beyond. With the proven flexibility of our business model, we're confident in our path to drive shareholder value for years to come.

I will now turn the call back over to the operator for questions.

(Operator Instructions) Oliver Chen, Cowen.

Hi, thank you very much. Great quarter. Hi, Brent, Andrew, Liyuan. Andrew, as we look ahead, unaided awareness is a big opportunity. What do you see as the opportunities in terms of marketing spend and investment, particularly as you think about Asia? Would love your thoughts on regions as this intersects and also longer-term marketing as a percentage of sales.

And then, Brent, would love your thoughts on M&A. I know you -- Beauty Health Company has a special relationship with aestheticians. Your thoughts on what you're seeing in the marketplace now, and also a framework for what might be most synergistic. And I had a follow-up for Liyuan. Thank you.

Oliver, thank you. It's Andrew. I'll kick that off and then hand off to Liyuan and Brent. If we break your question down, I think firstly, you're absolutely right. One of my key observations on my listening tour during these first two weeks is that actually the team have a great strength in terms of sales and education, and I would argue in my experience, it's best in class. Also, I've seen a real capability in that event marketing as we've seen with the GLOWvolution. But the opportunity to grow awareness is significant, and I think that's where I see the biggest opportunity. And we'll be building up our capability in terms of digital marketing, the team, and capability.

And in terms of investment, I think we're happy with the investment we have. I think we're going to just look into allocate that in different areas which really drive the awareness. I sensed coming into this, and I've said this to Brent and the Board during the interview process, I feel with HydraFacial we are set on the biggest secret, the best-kept secret in the beauty and wellness industry. During my interview process, I did a lot of due diligence, spoke to many people, and like me, I've been in the industry all my life. And many of us had not heard about this fantastic brand. But when you experience it, you really grow -- get it, and our conversion rate is very high. So obviously it's a major opportunity.

I think I'll hand over to Liyuan to talk in more detail about the rest of the question.

Actually, I think, Andrew, you have addressed it. And the only thing I'll add, Oliver, is as you know, even for 2021, we said we were going to double down on marketing, right? Historically, we invested about 6%. We were committing at 12%. But given the pandemic, we really dialed down in Q1 and we dialed down in Q4 because when you have a variant, it just doesn't make that much sense. So we actually did spend less than that 12%. That's still a really good target. So to Andrew's point, it's really a matter of reallocating the capital.

So, Brent, I will hand it to you on other -- on Oliver's question.

Yeah, Oliver, do you just want to repeat what else -- the question?

Yeah, a bit curious about M&A and the market environment, and also key synergies and a framework for how you are approaching what's ahead, what that journey is, BeautyHealth as a platform. Thanks.

Yeah. So we've been pretty active evaluating targets. We were last year and we continue to do that this year. I think what's starting to change is frankly the reason we haven't done one yet, which is valuations. So last year, we were seeing very high expectations on valuations, and in many cases, outlandish. And as you know, we are a very disciplined team. We are starting to see some green shoots of people recognizing that the markets probably aren't what they used to be and valuations are starting to come in line. The IPO alternative is not as attractive as it used to be. So I think that's good.

We have a couple of things that we're evaluating, as we always are. And Andrew's starting to get deep into it as well, so it's great to have another strong mind looking at these things. But we're going to stay disciplined. We're going to continue to follow our criteria of looking for things that have a high NPS score, that allow us to leverage our current distribution capabilities, i.e. the aestheticians, in large part, and something that would be accretive to our financials and our growth.

So those are our criteria, and we have lots of opportunities and we are going to continue to stay very focused and disciplined.

Thank you very much. And Liyuan, just a follow-up on modeling. How should we think about consumables relative to delivery system growth? And as we think about your forecasts, what about the number of units relative to ASP? And what's embedded roughly in terms of how many people may upgrade to Syndeo? Thanks a lot for any detail.

Yeah, no, absolutely, Oliver. So this is a really important year, obviously, as we launch Syndeo. Directionally speaking, as we have shared, I have mentioned we always thought that consumables should be running ahead of delivery systems. But as you see, our number one strategy is actually profitable land grab. So you can see, even for 2021, despite the pandemic, we delivered over 6,000 versus historical 3,500 to 4,000 systems. So with that in mind, that remains to be number one priority of ours. So for our own modeling purposes, we are still assuming that 50-50 split.

In terms of ASP, directionally speaking, what we have mentioned is a high single-digit raise for both of the delivery systems and the consumables, so that would be a safe number to use as we model out the ASP. I think the final question that you had raised in terms of how do we think about the upgrade cycle. So this was why we are trying to emphasize the fact that when it comes to trade-ups, it will be accretive to both of the top line and the bottom line. And we will really test and learn to see how many of the -- of our key customers that purchased the last 12 to 18 months choose to upgrade with us. So really, the way we think about this depends on the percentage of penetration of the upgrades.

Let's say if it's a low single digit as historical, then you're talking maybe a low single-digit impact to gross margin percentage or ASP. But really it's accretive against the EBITDA. But let's say if a quarter of the delivery system that we sell are actually trade-ups, then -- and they are really recent purchase trade-ups, then you might have a risk running into a 5% impact to the gross margin percent, but it's all accretive. It's above and beyond what we assumed in our guidance and model.

Thank you very much. Best regards.

Bruce Jackson, The Benchmark Company.

Hi. Thanks for taking my questions. It's a nice quarter. I just have one question on the manufacturing side. Some other industries are experiencing chip shortages. I'm wondering if you can get an adequate supply of parts for the new delivery system, and are you going to be able to meet demand?

Hey, Bruce. Great to hear your voice. Yes, so we actually tried to address this previously as well. Because we are a growth company, because the fact that we are launching a brand-new system, our approach has been just purchasing ahead. So we have been buying ahead, use our capital to secure all the parts that will be required as we launch the system this year.

Okay, great. And actually I might sneak in one more question on capital deployment. Obviously you've got an active M&A program going right now. What are the other potential uses for capital deployment? And then how would you prioritize those?

Yeah, so maybe I'll take a stab at that. Look, capital allocation is a critical part of how we think about our business in our responsibilities. Clearly, we are in growth mode and we have an amazing platform in HydraFacial. And we have, from day one, been very open with our investors that we plan to do M&A to take advantage of this distribution capability that we have and this great brand and capability of our team.

That being said, we evaluate that against all other alternatives. And those alternatives include things like a buyback. And so anything that we look at and in the M&A category has to be evaluated against buying our own stock as well. That being said, the preference is for growth and the preference is to invest in M&A, but the standard and benchmark has to be looking at the alternatives and seeing what's the right thing for all of our shareholders.

All right. Super. Thank you very much.

Korinne Wolfmeyer, Piper Sandler.

Hi. Thanks for taking the question. Congrats on the quarter and welcome, Andrew. I'm looking forward to working with you more. So first, I wanted to touch on what you've been seeing throughout the early parts of the first quarter here. I know you did mention a little bit on typical seasonality trends, but have you seen anything specific in terms of traffic flow related to Omicron? And we haven't heard much impact from that in our checks, but just curious what you've been seeing.

Hey, Korinne. It's Liyuan here. So I would say when you look at our regions, we continue to see the similar trend with high demand when it comes to personal care, especially for Americas and EMEA regions. When it comes to APAC, I think we emphasized that. That's the only market we've been sharing with you guys since Q2, is the approach that the governments take are different compared to Americas and EMEA. So that trend continues, especially when it comes to China. The government continues to take a stand of being very disciplined about shutting down cities. So that's the only thing that we've truly observed that's -- continue being impacted by COVID.

(multiple speakers) We're going to start to see China open up a bit more. Obviously they are opening up to foreigners and others, so we'll take it as it comes. But it's completely baked into to how we think about the year. And we've been pretty flexible and nimble in just trying to manage through that. We've gotten quite good at it, unfortunately. It's not something we ever wanted to, but we are quite good at it.

Awesome. Thank you, that's really helpful. And maybe this one for Andrew. I know we have talked a lot about the marketing strategies for the year, but can you just provide any further detail on what you plan to implement once these start hitting the ground running here in the next couple of months? You have a lot of good experience with influencers and stuff like that, so just any further detail on what you plan to implement over the next couple months, couple quarters?

Sure. Hi, Korinne. It's great to speak to you. Yeah, I'm just two weeks in, and as I've mentioned earlier to Oliver, I think we've got a really strong capability in product, innovation, distribution, education, and in the events. I think where I'm working with the team now to pivot is in terms of how we are using our digital influencer marketing to really drive brand awareness. And it's really focused on our critical launch, which is the launch of Syndeo, which is our new delivery system which we are imminently out about to launch.

And I'm really impressed with that technology in these first few weeks. It's new, better, different than anything else on the market. It's a real leap forward in experience on technology. I describe, it goes from just of an analog to a real digital experience.

And of course, that's going to give us so much more data. It connects the consumer, the provider, the aesthetician, of course, to the company, which will enable us to be a lot more nimble and agile in the way we market and drive awareness and engage with our consumers in future and also measure consumption. It's going to give us a proximity to measuring the business, which we've never had before. So it's really exciting.

Back to your original question, my key objective is really raising the awareness, because we're so confident in the technology, we are so confident in the education and the skills of the aesthetician community that we can convert the user. We've just got to get them crossing that threshold and coming into the experience.

Thank you.

Amit Hazan, Goldman Sachs.

Hi. This is Phil on for Amit. Thanks for taking the question. I wanted to dig back in a little bit more on guidance and the split between delivery systems in consumables. Liyuan, you've emphasized the 4,000 systems annually a couple of times during this call, but very clearly blew through that number this year and the guidance from our standpoint looks pretty similar: 6,000-plus systems next year to be able to get to the numbers. I'm just wondering if you want to update that and provide a different outlook with this much stronger infrastructure that's been built over the last few years, and guidance going forward for system placements as we move ahead.

Yeah, no, absolutely. I think when we think about the number one strategy initiative, it's truly rolling out as many systems as possible, by the fact that we are actually hiring more folks around the globe. Truly also have that in mind. So a great point, in a sense, we are sequentially improving in productivity every quarter, the number of systems being rolled out. And we fully expect that trend or the push to continue.

And if I can just add -- and thanks for the question -- I think, look, I'm a new CEO. We are a relatively new team and public company. And we take the commitments we give on guidance very seriously to our investors. So we are absolutely laser-focused on delivering on those commitments, and I think you can expect us to be very straightforward and clear going forward. Thank you.

Yeah, that's a great follow-up, Andrew. Thanks for that color. If we flip over to the consumables side, I think it's the opposite, which still seems like treatments per system were a little bit repressed due to movement restrictions and the other things going on from a broader macro landscape. So it looks like this year, your consumables are likely to exceed the revenue that's going to be generated from delivery systems even in an upside scenario. So just interested what's embedded from a treatment-per-system standpoint in your model moving forward. Is that something that you expect to exceed what we saw in 2019 before the pandemic hit? Thanks so much for the questions.

Yeah, absolutely. The team is focused on really driving that utilization and that engagement. To your point, from a performance point of view, those are all the key elements of the strategy we are focusing on. We anticipate driving, at a minimum, the similar level of the utilization barring any of the pandemic impact.

Okay. Thanks, all, for the questions.

Olivia Tong, Raymond James.

Great, thanks. Good afternoon and congrats, Andrew. It's nice to speak with you again. Perhaps can we start just talking about what you think are perhaps the greatest immediate opportunities for The Beauty Health Company, in your view? And then with respect to the Syndeo launch, are you -- are there new third-party relationships you're bringing in to help leverage the data you'll be collecting? How do you work that into a potential digital social media enhancement strategy? Just would love a little bit more detail in terms of the benefits that 2.0 offers and how you plan on leveraging that. Thank you.

Hi, Olivia. Thank you, and it's great to speak to you again. Look, it's been a great and intense first two weeks. And first of all, I'm really focused on and full alignment with the existing strategy the team had in place. So I think the focus now, of course, is on accelerating that and executing it flawlessly. And I think me picking up the reins is a continuation of that strategy.

I think in terms of priorities, the number one priority for me and the team is really ensuring a flawless launch of the new Syndeo delivery system. Syndeo, as I mentioned earlier, is -- means connected in Greek and it's our top priority. Then we're going to really focus on expanding our footprint to more doors. And obviously that system gives us a level of connectivity and visibility through its connectedness with consumers, providers, and aestheticians, which will really help drive other aspects of our business.

I think secondly, the other key opportunity I see -- and the company has real advance competitive advantages here is with the training and education. That is a really key lever in developing our trusted aesthetician community and turning them into brand evangelists and advocates, influencers per se. I think there's much more we can do to really amplify their voice.

The third one is really -- is both expansion in the US but also a geographic expansion. I feel we are really underpenetrated. When you look -- if you take just the US market, for one example, and in just one channel of the US, which is the medical channel, today, a brand like Botox, we estimate to be in about 40,000 points of distribution. When you consider today that globally -- globally, HydraFacial is only in 20,000 points of distribution, just in that channel alone, we have significant opportunity.

And of course, there's the nonmedical, what we've been doing in spas, hotels, gyms, our partnership with Sephora. We have pilots in Nordstrom and Ulta, which is really exciting. And then of course, the geographic expansion. Having spent so much of my life living in many markets, including the seven years in Asia, I see just a huge opportunity that we are very nascent there. In fact, we are really just getting going outside of the US for the development of this brand. So geographic expansion is a really big opportunity.

Fourthly -- and Liyuan mentioned this earlier on the call several times -- it's about building up our global infrastructure and connected technology platform to really fuel the growth and communicate -- community engagements we need. Part of that, of course, is increasing our talent base, and we've been -- Brent and Liyuan have been doing that. In the last few months, we've appointed leaders in both EMEA and Asia to help fuel that growth.

And obviously we talked about this earlier: the fifth priority and opportunity is M&A. And as Brent has already mentioned, we're going to really take a very disciplined approach to ensuring that we identify a brand or product that is both accretive and complementary, so we can really derive the synergy from our existing fixed cost base. So plenty of opportunity; it's a really exciting time.

Thanks. That's helpful. And then the focus on growing the system, it's clearly paying dividends. But as a few have touched on already, the consumables growth hasn't quite accelerated to the same extent. So what gives you guys the confidence to price on consumables?

And then just broadly, your thoughts in terms of the mix of product going forward, the range of product in office versus in retail versus in-home. As you clearly -- the focus in the near to medium term is on Syndeo, but clearly there's other products that you are looking to diversify or at least enhance, excuse me, the product portfolio with. I'd love a little bit more detail there.

Absolutely. So why don't I kick off on that one? In terms of the consumable trends, look, based on my experience -- and I only recently, of course, left a big beauty company, I'm -- we're really sure from the conversations we've had with providers and aestheticians is that the trend and sellout on those products is predominantly just impacted by the impact of COVID and Omicron. And as we see markets opening up, we see those trends improving. So we're quite confident in the trend which we spoke to earlier and embedded in the guidance.

And of course, as we go forward, if we just focus on consumables, again, using my experience, I see a major opportunity to expand our offering in this area. There's a number of gestures and treatments which we could bring in to complement the really strong portfolio we have. Then more widely -- and I spent time in the first two weeks working with the R&D team, and we have a very impressive facility here in Long Beach, R&D and production -- by the way, it'd be lovely to host you here. But I think when we look at the portfolio and the innovation pipeline, I think there's a couple of things which really spring to mind.

Of course, we've got HydraFacial we can offer there, but we've all seen -- and you've seen that with the growth of peer companies, the major opportunity with hair and scalp care. Post-COVID, that's become a major part of people's self-care regime. We have a fabulous product. I really believe it's new, better, different with Keravive. There's much more we can do to really grow that, both in the US and globally, especially in Asia where scalp treatment is so key. Our focus now is Syndeo, but absolutely that will be something which we really get behind in the coming months ahead.

Also, we continue the glow and go model, the take-home product which we've been piloting. And we continue to review that carefully. That's another opportunity. Plus some other things in the pipeline which I'm not ready to talk about today, but the portfolio is strong.

Great. Thank you. Best of luck and look forward to seeing you.

Jon Block, Stifel.

Thanks, guys. Good afternoon. Andrew, maybe on that last point, is there anything on glow and go that's reflected in the 2022 guidance? I wasn't just sure -- crystal clear on that. Maybe you can just comment on that. And then just, I know you're out there, you're piloting it, maybe talk to us about the learnings so far on glow and go. Anything that you want to convey on pricing, in terms of feedback from the field? Thanks.

Jon, thanks for your question. So yes, in terms of glow and go, we haven't included it in our guidance. This is a true pilot, test and learn. And we will obviously continue to roll that out. I only want to launch something which we are really confident will be new, better, different than anything else on the market. Not ready yet to talk about pricing. It really is in the early stages of testing, and I saw my first review of it last week. Liyuan, anything to add on your side on this?

No. Hi, Jon. I think that covers it.

Okay, great. And then just for the follow-up, some numbers that I'll just throw out to you, but I thought the -- I don't know. I thought the 2022 adjusted EBITDA guidance was really impressive. And I calc a 25% -- a 25% of the incremental revenue is expected to drop down to EBITDA in 2022. And that seems like a really big number in light of the investments that you're still putting into this business. And then, Andrew, I think in the press release, you talk about growing into your historical adjusted EBITDA margins maybe as early as 2023. So just to be clear, what did you consider historical to be? And are we looking at a business that, even with these investments, you might see an adjusted EBITDA margin north of 20% next year? Next year, being 2023. Thanks for your time, guys.

Jon, thank you. So I will start and then hand off to Liyuan. In summary, 2021 and 2022 are big investment years. You'd expect that with the launch of a completely new delivery system, and these happen every three to four years. That's the rhythm of our business. But it is, as we said in the press release, and I think Brent talked it earlier on the call -- as we get to 2023, absolutely we expect the investments to provide that synergy and start on that journey, that multiyear journey to get back to historical levels of EBITDA. Liyuan, anything to add?

Yeah. Thank you, Jon. I think obviously we'll provide the guidance as we're getting closer to 2023. But if you recall, Jon, historically speaking, obviously it's a different model under private equity. We were generating over 20%, 25% EBITDA. Suffice to say, the heavy investment that we are making, a lot of that are core infrastructure in people and system costs. A lot of these will have great leverage once we sell more when it comes to raising top line. So directionally speaking, this is a very profitable business. So we're just head on executing.

Thank you, guys.

Margaret Kaczor, William Blair.

Hey, guys. This is Maggie Boeye on for Margaret today. Just wanted to ask a question on the revenue guide. So you guys are assuming a first-half launch of the next-gen system. So what is assumed in this guide for the progression of the launch in terms of timing and priority of new and existing accounts on a global basis?

Hi, Maggie. I'm going to -- I'll let Liyuan take that one.

Hey, Maggie. So for -- we have shared that US will launch followed by the rest of the market. And we have also shared that ASP directionally will go up high single digits. And those are the levers that we have used to build out our model.

Okay, got it. Thank you. And then just one last one. Given the impact of COVID, particularly in the APAC region, does this impact your plans for international expansion during 2022, if at all? And then what's assumed in the guide here just in terms of execution on that international expansion? Thank you.

Thanks, Maggie. No, I think our plans remain absolutely unchanged. And I think I talked earlier on the call that we see both growth in the US in terms of expanding our footprint in new doors with Syndeo; increasing productivity; and thirdly, geographic expansion, as three major tenets of our strategic growth plan. And it's full steam ahead with those plans.

So, Maggie, the only other thing I'll just add is we've always been very surgical in terms of how we hire. We expand in range, right? Like we usually go pretty deep in each geography so that we continue to go with that approach as we expand internationally.

Okay, great. Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day. Good-bye.