Beauty Health Co (SKIN) 2025 Q1 法說會逐字稿

(Operator Instructions)

Good day everyone, and welcome to today's Beauty Health Co first quarter 2025 earnings call. (Operator Instructions)

It is now my pleasure to turn the conference over to Norberto, Aja, Investor Relations.

Thank you, operator, and good afternoon, everyone. Thank you for joining the Beauty Health Company's conference call to review our first quarter 2025 results. We released our results earlier this afternoon, which can be found on our corporate website at beautyhealth.com.

Joining me on the call today is Beauty Health's Chief Executive Officer, Marla Beck; along with our Chief Financial Officer, Mike Monahan.

Before we begin, I would like to remind everyone of the company's Safe Harbor language. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations and involve risks and uncertainties that could cause actual results to differ materially.

Listeners are cautioned not to place undue reliance on any forward-looking statements. For a further discussion of risks related to our business, please see the company's filings with the SEC. This call will present non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures are in the earnings press release, furnished to the SEC and available on our website. Following management's prepared remarks, we will open the call for a question-and-answer session.

With that, I would now like to turn the call over to our CEO Marla Beck. Please go ahead, Marla.

Thank you, Norberto and good afternoon, everyone.

I appreciate you joining us to review our first quarter results. I'm pleased to report a strong start to the year. We exceeded our revenue and adjusted EBITDA guidance and continue to build momentum across our key strategic priorities. These results reflect the disciplined execution of our transformation strategy and the power of our recurring revenue model.

Since taking the home as CEO, my focus has been clear stabilize operations, reignite innovation, and return Beauty Health to sustainable, profitable growth. Our first quarter results reflect this momentum with strong consumable sales across all regions and notable improvements in key metrics including gross margin and bottom-line profitability.

Despite continued macro pressure on equipment sales, we exceeded revenue expectations at $69.6 million above the high end of our guidance and delivered over $7 million of adjusted EBITDA. This achievement was driven by a favorable mix shift toward high margin consumables, better inventory management, and operational cost discipline. Consumables grew over 8% and now represent over 70% of our revenue. Total active devices in the field increased to over 35,000 units versus approximately 32,500 units at the end of Q1 2024, highlighting the demand for Hydrafacial devices and medical aesthetics practices.

Looking ahead to the rest of 2025, our strategic focus remains anchored on three priorities enhancing commercial execution, accelerating science-backed innovation, and deepening provider partnerships.

Our first priority is enhancing commercial execution. We're beginning to see traction from our improved go to market approach. This includes our refined sales structure, enhanced pricing flexibility, and tools to drive smarter, faster execution. We are generating results using greater analytical discipline, particularly in our direct markets.

In China, the transition to a third-party distribution model is already underway, preserving access to a high growth market while simplifying operations and lowering capital intensity. We've also opened our device portfolio to more flexible pricing and product options, leading to increased demand, especially for non-Syndeo units which represented 36% of system sales in the first quarter.

Operationally, we completed the consolidation of our production in the US in the fourth quarter, a move that enhances quality, increases agility, and most significantly reduces tariff exposure. These strategic shifts are improving execution, lowering complexity, and positioning us to scale more efficiently.

Our second priority is accelerating science-backed innovation. Innovation remains central to our Medtech meets beauty positioning. We're reigniting our pipeline with clinical rigor and consumer relevance. The Hydralock HA booster launched in the second half of 2024, marked the most successful branded booster launched in our history.

Building on that momentum, we're preparing to launch the new hydrophilic booster with our proprietary PEP 9 complex in June, targeting signs of aging, a top skin concern among consumers. Later this year we'll introduce three new treatment tips, one for the lip area and two more to extend our proprietary Keravive scalp solution.

Our backbar initiative as part of our rapid treatment room strategy is another exciting milestone. These skincare products that can be used as part of our in-room Hydrafacial services will complement treatments, improve outcomes, and increase provider revenue potential.

The backbar rollout begins in the second half of this year, and to expand beyond the treatment room, we're developing a dedicated skincare line, further strengthening our consumer facing offerings. Each of these innovations is grounded in clinical validation, reinforcing Hydrafacial leadership and science-backed aesthetics.

Our third priority is deepening provider partnerships. Strong provider relationships are foundational to our growth. To support this, we have a dedicated business development team that partners with our providers to drive their revenue growth. In the first quarter, US national accounts were a highlight with strength in the medical sector, especially med spas, dermatology, and wellness providers.

We're building on this momentum with the relaunch of our US loyalty program expected in Q3 2025. The program is designed to reward provider commitment and boost engagement throughout our ecosystem while driving incremental sales. We're also investing in brand and consumer engagement. A refresh campaign launching this year will elevate awareness, spotlight our innovation pipeline, and drive traffic to providers.

In summary, Q1 reflects solid execution of our transformation strategy. We exceeded both internal and external expectations, saw continued growth in consumables, improved profitability, and made strategic moves to strengthen our operational model. We're focused on driving sustainable margin expansion and delivering against our three strategic pillars commercial excellence, innovation, and provider engagement to unlock long-term value.

Mike, over to you.

Thank you, Marla. I'm pleased to report we delivered the quarter above our initial expectations. Revenue for Q1 came in at $69.6 million, adjusted gross margin was 71.9%, and adjusted EBITDA was $7.3 million. We continue to grow our global footprint, which adds to the recurring consumables revenue stream. In the first quarter, we sold 862 total units worldwide at an average selling price of approximately $23,455. As of March 31, 2025, total active machines in the field increased to 35,014 units versus 32,530 units at the end of Q1 2024.

Consumable sales for the quarter totalled $49.4 million or an 8.2% increase versus the comparable prior year period with growth across all regions. Consumable net sales increased 3.5% in the Americas, 42.6% in APAC, and 7.9% in EMEA. Macroeconomic pressures continue to impact capital equipment purchasing decisions, contributing to a 43.5% year over year decline in global device sales.

Our good better best device strategy addresses this by expanding provider access by offering select systems at lower price points. This initiative is working well as non-Syndeo systems represented 36% of total devices sold in Q1 last year. With this approach, we believe we will be well positioned to capture additional market share when the macro environment improves.

From a regional perspective, Q1 consolidated revenue in the Americas was down 8.1%, while revenue across APAC and EMEA declined by 30.4% and 21.6% respectively. Contributing to the decline in APAC is the plan to go to market strategy change in China. We have begun transitioning the business from a direct to a distributor model and expect to make initial shipments during the second quarter of 2025.

As part of this plan, we ensure that we warehouse enough capital equipment inventory in China to satisfy expected equipment demand for the remainder of the year that will not be subject to tariffs. We will have some exposure to tariffs for consumables sold into China, however, we are working through this with our new distribution partner.

Gross margins came in strong, driven primarily by discipline, demand planning, overall management of inventory, a favorable mix towards consumable net sales, and improved operational processes. This led to reduced excess and obsolete inventory charges and reduced overhead spend. Specifically, gross profit for the first quarter was $48.6 million, comparing favorably to $48.4 million in the prior year period.

Adjusted gross margin for the quarter was 71.9% compared to 63.4% in the prior year period. GAAP gross margin for the quarter was 69.8%, improving versus the prior year period as well as sequentially from 62.7% in Q4 of 2024. Total operating expenses for the first quarter decreased by 7.3% to $60.6 million as we continue to manage our expenses.

Selling and marketing expense was down approximately 22.7% to $26 million, reflecting lower personnel related expenses, including share-based compensation, lower sales commission, marketing, training, and events expense.

R&D expense was also down $1.8 million while G&A expense was $33.6 million or an increase of 16.3%, driven primarily by higher legal fees and severance and restructuring expense, partially offset by lower personnel related expenses including share-based compensation and bad debt recoveries. This led to an operating loss of $12 million in Q1 2025, an improvement versus a loss of $17 million in the comparable prior year.

Adjusted EBITDA $7.3 million was above our implied guidance, reflecting lower operational spend and higher gross margins. We ended the quarter with approximately $373 million in cash, an improvement from approximately $370 million on December 31, 2024.

This reflects the initial benefits of the cost reductions and operational actions we have taken to improve the efficiency of the business. As of March 31, inventory was $65.6 million, a decrease compared to$69.1 million in December. In full year 2025 sales of between $270million to 300 million and adjusted EBITDA to $15million to $25 million.

Compared to full year 2024, our full year 2025 guidance assumes continued pressure on delivery systems due to financing pressure and uncertainty in the global market, projecting decline in all three regions, specifically in China. Capital expenditures are expected to be approximately $10million to $15 million for the full year 2025.

For the second quarter we are projecting sales of $71million to $76 million and an adjusted EBITDA of $2 million to $4 million. Our second quarter and full year guidance assumes no material deterioration in current general market conditions or other unforeseen circumstances beyond the company's control, such as foreign currency, exchange rates, tariffs, and trade restrictions. It also excluded any potential acquisitions, dispositions, or financing. Next, I'd like to take a minute to address tariffs.

We made several changes to the business over the past 6 months to position the company to be able to minimize the impact of tariffs. In the prior year we moved our production from China back to the United States. As a result, while there are certain raw materials and componentry that is sourced internationally, 100% of our capital production is now in Long Beach, California. Additionally, we strategically placed our capital equipment inventory across the globe based on projected demand so that we are less exposed to import tariffs.

On the supply side, we expect the impact of tariffs to be approximately $5 million of additional costs in 2025 based on what we know now and have factored that estimate into our projections. The tariff situation is very fluid. As we get more information, we will adjust our expectations as needed.

In summary, we're encouraged by our first quarter performance reflecting the execution of strategic initiatives. Despite a dynamic environment, our strategy is delivering results, and we're confident that the actions we're taking are laying a strong and agile foundation for sustained, profitable growth in the future.

Looking ahead, we remain committed to creating lasting shareholder value by unlocking the significant growth potential of Hydrafacial as the market leader in the growing category of minimally invasive skin health treatments.

I'll now turn the call back to Marla.

Thank you, Mike. I'd like to reiterate that we are on track with our strategic plan. Our focus remains anchored on our three priorities enhancing commercial execution, accelerating science-backed innovation, and deepening provider partnerships. We're confident that as we continue to execute, we will drive long-term shareholder value. I'd like to close with a sincere thank you to all of our Hydrafacial employees around the globe. Our success would not be possible without your hard work and dedication.

Thank you. With that, I'd like to turn the call over for Q&A.

(Operator Instructions)

Oliver Chen, TD Cowen.

Thank you. This is Jonah on for Oliver today. I would love some perspectives on key drivers behind better profitability for the year. Just key puts and takes there? And what are potential areas of upside to your full year guide as well? And just one more question on the end consumer strength. Are you seeing any signs of pullback from the end consumer as a macro remains uncertain? Thank you so much.

Mike, why don't you take this out of the question and then I'll take the consumer.

Great. So, our guidance implies slight improvement in the back half of 2025, especially -- however, given the uncertainty regarding the macro environment, we still remain, somewhat cautious and factor that in. However, we have a number of initiatives. We're executing on to drive a return to growth, including lower price equipment options, improved sales execution, and investment and innovations. So, we'll keep the investors updated throughout the year on these initiatives as we continue to look to drive incremental profitability and growth.

I'll talk a little bit about what we're seeing with consumers. Our consumable sales growth continues to be strong, and what we're seeing is strong growth in our signature treatments, which is our core everyday treatment, which shows that Hydrafacial is a part of our consumer's everyday skin health routines.

We are seeing slightly lower adoption of our luxury treatments, and we have a lot of spots we're seeing with the consumer, the dermatology and wellness sectors are really strong. Our US national accounts, specifically our medical national counts, have experienced significant growth.

And then, we're seeing a little softness in the day spa and in the plastic surgeon channel. They're not growing as well, but that makes sense because they're more luxury sort of less necessity services and some of the dermatology and wellness channels.

But we do believe that the med spas and doctors' offices that have loyal clientele will continue to drive patients and consumers into Hydrafacial treatments as they're minimally invasive and can be experienced every 30 days. They also have a more accessible price point than some of the other more extensive treatments in the sector.

Susan Anderson, Canaccord Genuity.

Hi, good evening. Thanks for taking my questions. It's nice job on the quarter. I was wondering if maybe you could talk about the consumables, it's definitely a standout across all the regions. Maybe if you could give some color on also how much the new launches, such as the Hydralock launch is helping to drive that strength? And also I was just looking at the APAC region, it looks like it did see a big pick up there if you could talk about the drivers there as well. Thanks

I'll have Mike, the regional part, but I'll talk briefly about Hydralock HA. Hydralock HA is really a traffic driver for practices. As the practices and med spas can market a new product to their consumers. It drives additional visits. Additionally, it gives our sales force a reason to visit and talk with.

Our providers and create events around new products. So, we are really excited about the potential that new products have to drive consumer traffic and then provider revenue. We don't disclose sort of specifics, but this makes us really excited about the hydraphilic launch that's coming in June. In terms of any regional color, I'll pass it to Mike.

Yeah. Hi Susan. You're correct. We did have improvement in year over year in the overall APAC region for consumables. A big piece of it was China. The team did a good job, with less discounting and really selling some of the items into our existing consumer base.

Okay, great. And then, I guess, just looking at the skincare launch, did you say what the timing of that would be? I'm not sure if I missed that. And then I guess how should we think about what that will look like? Is it going to be kind of a suite of products or is it going to be a couple of products or how should we think about that when the launch happens?

Yeah, there are two parts. The back bar launch, which is really the skincare products that can be used in the treatment room, is slated for the back half of this year. So, it has a number of skews, but it'll be very early days. I mean, the plan is to build. The more comprehensive line with the launch this fall is the start and then skincare is really slated for the beginning of next year. So back bar in the treatment room, back half of this year, skincare and the beginning of next year.

Jon Block, Stifel.

Great, thanks guys. Good afternoon. Gross margin really strong in the quarter. So maybe I'll start there. Mick is this the new run rate call and I'm guessing that's the main driver to the positive EBITDA revision despite the top line being unchanged. Maybe if you can provide some color there and then I'll have a follow up.

Sure, Hi, Jon. So, in the quarter we did have a strong quarter for gross margin. I mentioned that a little bit in the script. Credit to the operations team and the organization, we've really drove efficiency throughout our supply chain. That was a big piece of it. The team has done a really good job of tightening up demand planning, so we minimize write-offs.

And then also the next component that we had a high percentage of consumables in Q1 because some from just overall performance of consumables was strong, and then we're continuing to see some pressure on the capital equipment side so that helps us out.

For Q2 in the remainder of the year. I would expect it to step down from Q1 for a couple of reasons. One is I would expect a slightly higher percentage of equipment purchases as a percentage of revenue going forward is the way we've modeled it in. And then secondly, the tariff and import costs that we mentioned, while we're able to minimize it, there we are expecting an impact this year and that will flow through our overall cost of sales.

Got It. Very helpful. And maybe for the second question, maybe a two parter. Marla, first, just on the good, better, best, you've now got a bunch of the different systems out there. So I'm just curious if you see a difference in the actual consumable utilization from call it the good. better, best, strategy.

Out in the field and then like to go back to the tariffs, the $5 million hit this year, but there did seem to be a lot of planning to your point to avoid or limit the import tariffs. So, when we think forward to '26 and you can't get all the inventory out there in advance of tariff implementation, does the $5 million run rate, or does that number change dramatically as we think about next year?

Thank you.

Yeah, it's a great question about consumable utilization between the devices. They all perform a similar treatment with Syndeo having some more bells and whistles, including lymphatic treatment. In terms of what we're seeing, the benefit of having Syndeo's. In the field is that there's a tool that helps the provider select which booster for the consumer as part of the prompting and the screen. So, we do see historically more boosters used with the Syndeo relative to the other devices.

So that is something we watch, and we are. On getting pull through in the boosters among, elite and Allegro users also. But in terms of sort of our day-to-day core consumables, all three devices use all of the base solutions that go into the devices. So good question.

And on the tariffs, if I understood the second part of your question, you're right, the team did a good job, a really good job, kind of anticipating some of the tariffs and positioning the company so we could minimize the impact this year. Projecting into 2026 is early. I would say where we sit today, that the situation's so fluid and keeps changing.

I will say the team is continually looking at ways to onshore some of the purchases to make sure that we're even better positioned kind of going forward, but we'll have more of an update into that, in the upcoming quarters once we have a little bit more visibility about where this might settle.

Olivia Tong, Raymond James & Associates.

Great, thanks. Good afternoon. My first question is on the sales guide. Your outlook for the year at the midpoint seems to suggest mid-teens decline, which is in line with what you report for Q1.

So first, why wouldn't the run rate be a little bit better as the year progresses, especially if you have more new products in place, as well as the material easing in comps? And then secondly, your Q2 guide would suggest there's a deceleration in the rate of sales, you sequentially versus Q1. Why would that be the case? Thanks.

Yeah, one of the drivers that offset the guide, so we had -- we exceeded it where we thought we were going to be in Q1, but we maintained the guidance we had before, largely driven by what's going on in APAC and specifically China. And so, with the tariffs where they are now, we are positioned well on the capital side, but we lowered our expectations in terms in terms of the consumable sales for the for Q2 and the remainder of the year because of where the tariffs are going to sit.

So that's kind of an offset to some of the improvements we're seeing, and that's really one of the larger drivers for what you mentioned in terms of a bit of a slowdown in the year-to-year comp in the second quarter.

Got it. And then just following up on gross margins, obviously very strong Q1, and just trying to understand the sustainability of that. I know you mentioned more equipment purchase and tariffs, but typically your growth margins higher in the second half than in the first half. So should we expect that to continue or not because of the incremental -- incrementality of expenses related to tariffs?

The latter, the tariffs we're expecting and projecting that to have a larger impact starting a bit in Q2, but mostly in the second half of the year as we run down our inventory and start flowing through some of the purchases that we have to make at the higher cost.

Okay, so the tariffs will eat up the normal seasonality that you see in terms of first half versus second half dynamics.

That's the way we projected it, correct.

Ashley Helgans, Jefferies.

Hi, this is Sydney on for Ashley. I'm just wondering how you kind of think about the terminal mix of consumables as a percent of sales and where you kind of want that to ultimately shake out. And then also just thinking about consumables by region, any difference in trends you would call out, maybe level of attached rate, any kind of detail there would be helpful. Thank you.

Mike, do you want to take that?

Sure, so the first part of your question, for our, we don't have a targeted mix, where in this macro environment. We're -- we expect to grow overall capital equipment kind of in the future. We're not positioned to do that or forecasting to do that this year, so it's really the mix is going to depend on where the capital equipment sales kind of level out, but our belief is that there's still a significant TAM for our product and brands, and so we're really positioning the company to return to growth there.

On the regional for consumables, the largest piece and I mentioned this earlier, where we expect pressure is really in the APAC in China region that's driven by, where we are with the tariff situation. And so, for our projections in the back half of this year and even to some degree in Q2, we reduced our consumable sales expectations, assuming that the tariffs that are currently in place will stick.

Bruce Jackson, The Benchmark Company.

Hi, good afternoon. Thanks for taking the questions. I was hoping we could go back to the consumer demand dynamics. You said that the medical side was a little bit weak during the quarter and that the health and beauty side is holding up pretty well. Is that still the case quarter to date given the change in consumer confidence?

Yeah, good question, Bruce. I mean, when I, the dermatology and wellness sectors are really strong, so it's interesting, it's sort of bifurcated, right? Med Spa, dermatology, and wellness, super strong with growth in adding some of the boosters and the luxury treatments, it's the day spas and plastic surgeons that did plastic surgery practices that did not grow as well as the others.

And as I mentioned, it makes a little bit of sense, right, which is as plastic surgery locations and going for a facial to day spot it's not as necessity as going to derm for treatments and going to get some of your other treatments for the derms or the med spa. So, I think it makes sense, but we're seeing health across all sectors in terms of our signature Hydrafacial treatment. It's just some trading away from the adoption of our more luxury treatments.

Korinne Wolfmeyer, Piper Sandler.

Hi, this is Sara on for Korinne. Thanks for taking our question. I want you to talk a little bit about the marketing spend over the course of the year? And then any color on spending tactics and campaigns to expect this year? And then just how willing are you to flex if needed to protect the bottom line?

I'll have Mike talk about this spend in marketing, and then I'll talk about some of the tactics.

Yeah, so overall we're modeled out that we hold sales and marketing as a percentage of revenue. We're targeting where we were last year. The mix of where we're spending the dollars has changed, kind of on a year-to-year basis. We're starting to invest more dollars to drive the end consumer into the provider and support our provider network and really kind of focusing in on that area of spend to get behind the brand and, support our provider base.

Mike, you covered it. I mean, pull through is really our critical focus and so that means evening, which means providing our, giving our providers gift with purchase to drive consumers into practice. So, it's just an acute focus on an ROI we can get in partnership with our providers.

(Operator Instructions)

Navann Ty, BNP Paribas Exane.

Thank you. Can you discuss the progress made on the shift of distributor model in China? And also if you can clarify whether the Paris impact is on a net basis of mitigating actions, you also have option if you have seen more competition and commoditization [microdermration] lately.

Thank you.

I want to make sure I answer the first part of the question I followed, there was a little bit of static, so I apologize in terms of our transition to a distributor model for China, we've begun that and are far along, so we've identified a partner working with them to transition all the operations, we expect we should complete the transition during kind of this quarter and then we'll continue to wind down the operations for the remainder in the year and potentially into next year.

Can you repeat the second part of the question.

The question that I didn't quite hear, and then I'll take the question on competition.

Sure. Whether the tariffs impact was on a net basis after the mitigating actions.

So the tariffs we did not assume that we would pass through all of that expense, and we are starting to work through, potential pass through of the expense to our providers and then consumers. So we're still evaluating that and haven't factored that in so we just factored the expense.

And then in terms of competition, we remain the category leader with over 60% market share in the US, and we are the number one most requested facial treatment by consumers with a very high consumer NPS as compared to our competitors.

We're a gateway treatment, so in our category we drive the most newest patients to practices according to the point-of-sale data we have, and then we're really focused in on how well we pair with other aesthetic treatments.

So, we feel good about vis the competition and as we continue to double down on our clinical backing for our treatments and the products that complement our treatments that gives us further distance from any of our other competitors that do not have clinical backing for any of their boosters or products that go with their treatments.

Thank you. And there are no further questions at this time. I will now turn the call back to Marla Beck for closing remarks.

Thank you for all, to all of you for joining us today. We appreciate your time and wish you the best.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.