AirSculpt Technologies Q3 2023 Earnings Call Transcript

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November 10, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Airscope Technologies, Inc. Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce your host, Dennis Dean of AirSculpt, thank you. You may begin.

Speaker 1

Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies' results for the Q3. Joining me on the call today is the company's Founder and Executive Chairman, Doctor. Aaron Rollins and Chief Executive Officer, Todd Magazine. Before we begin, I would like to remind you that this conference call may include forward looking statements. These statements may include our future expectations regarding financial results and guidance, Market opportunities and our growth.

Speaker 1

Risk and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results Are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website at investors. Elitebodysculpture .com. We undertake no obligation to revise or update any forward looking statements or information except as required by law. During our call today, we will also reference certain non GAAP financial measures. We use non GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.

Speaker 1

A reconciliation of these measures can be found in our earnings release as filed last night and in our most recent 10 Q when filed, which will also be available on our website. With that, I'll turn the call over to Aaron.

Speaker 2

Thank you, Dennis. Good morning to everyone and thanks for joining the call. I'm very pleased with our strong Q3 results And our team's ability to execute with excellence on a global basis. We are also making great strides in growing brand awareness for Air And believe the investments we are making now are important to our future success. We look forward to a strong finish 2023 and continuing to drive long term shareholder value.

Speaker 2

On the innovation front, as I mentioned during the last quarter call, We are early in the rollout of Aeroscope Lift, a facial fat transfer procedure that can eliminate wrinkles, restore lost volume to areas of the face And provide more volume in lips. As you know, the broader filler market is over $4,000,000,000 which expands our already significant TAM to over $11,000,000,000 We have started the rollout of Aeroscope Lift in about a third of our centers, including London, and we'll continue to expand into the rest of the centers over the coming months as we train up our doctors and educate our sales and marketing teams. While we are early in the process, we expect a meaningful impact in 2024. Overall, our team is delivering consistent performance and executing on our key growth areas. Our strategy continues to focus on strengthening the Earthscope brand, Accelerating our store openings and further enhancing our profitability as we scale our business both domestically and internationally.

Speaker 2

With that, Let me now turn things over to Tom.

Speaker 3

Thank you, Aaron, and thank you to everyone on the call for joining us today. I am very pleased with our Q3 results, Highlighted by revenue growth of approximately 20% year over year, which was well ahead of our projections and included case growth of 19%. Our volume and revenue growth for the quarter was led by our de novo centers that opened over the past 12 months. This includes our 2023 de novo cohort, whose average revenue in their 1st 3 months was the highest level in our history, excluding our 2021 cohort, which as previously discussed, had a pronounced benefit from COVID. We're also happy to share that we saw a healthy 5.3% increase in our same store revenue growth.

Speaker 3

Over the past year or so, our same store growth was greatly affected by COVID baseline comparisons. Now that this is behind us, We fully expect our same store growth to return to normal levels. As a result of our strong third quarter performance And the strong demand we continue to see, we have increased our full year revenue guidance to $196,000,000 which is a 16% growth rate for 2023. We also revised our 2023 adjusted EBITDA guidance of at least $45,000,000 which was an increase over our prior year forecast of $43,000,000 to $45,000,000 Similar to prior calls, I would like to provide an update on my 3 key focus areas As a reminder, they are: 1, driving revenue growth, which includes ramping up our de novo expansion program 2, strengthening the organization, improving our processes to support a much larger and more robust fleet of centers. And finally, rightsizing our cost structure to further increase our profitability.

Speaker 3

From a revenue growth standpoint, our de novo program continues to demonstrate Strong and predictable performance. With the opening of our San Jose, California and Raleigh, North Carolina locations during the quarter, We have now delivered on our goal of opening 5 new centers in 2023, including our 1st overseas location This is the most de novos we have opened in a single year. But more importantly, all 5 centers are performing at giving us continued optimism that this will be a flagship location as well as a gateway to other international markets. I'm also happy to share that our 2024 de novo pipeline is robust. As announced during our last call, we will open at least 6 new centers next year, which includes locations in Detroit, Michigan and Kansas City, Kansas, our first locations in these states.

Speaker 3

We're also announcing a new location in the Chicagoland area. This will be our 2nd location in this market, which will provide additional critical mass that will enable increased brand awareness and operational efficiencies. We look forward to sharing more about our de novo growth strategy on our year end call. Finally, as it relates to revenue growth, as I noted above, we are excited to see our business return to positive same store growth this quarter, Now that the prior year comparison is no longer reflecting the anomalous consumer behavior related to COVID. Our comp center growth for the quarter as well as our average surgery price of $13,600 which was above the high end of our range, Further reinforces our continued optimism that our unique proposition remains in high demand, with no evidence But the broader economic concerns or the popularity of the new weight loss drugs are having any adverse impact on our business.

Speaker 3

I'd like to turn now to my focus area related to strengthening the organization and improving our processes. As we reported last quarter, we have fully completed the additions to our executive team. We are confident that these additions will make the business much stronger and will allow us to grow faster and more efficiently in the years ahead. We're also rolling out sales force, which will take our sales and marketing processes to a completely new level. Historically, our processes have been very manual and tracking relevant KPIs has been very difficult and inefficient.

Speaker 3

Salesforce will provide us with more real time data and will allow us to better analyze our sales and marketing performance, both of which will further help drive growth. We anticipate this implementation to be completed by the end of the Q1 of 2024. Let me turn now to our cost management efforts. Our stated plans remain on track, which will enable us to fully achieve our plan of $2,500,000 of cost savings in 2023 with a run rate of $5,000,000 as we exit the year. Clearly, our cost savings efforts are helping put us on a path back to achieving our historical EBITDA margin levels of 30% plus.

Speaker 3

However, these cost savings efforts combined with our strong business performance have also given us the opportunity to invest in brand awareness efforts, which have a long tail impact on business performance. Our first significant brand awareness It was earlier this year with actress and TV personality, Jenny McCarthy. Given the strong consumer response to this effort, we invested in a second celebrity initiative With singer, dancer, actor and TV personality, Joey Fatone, a member of the popular band, NSYNC. To the surprise and delight of fans, the band recently reunited at the 2023 MTV VMAs to present Taylor Swift The award for Best Pop Video. Shortly after this appearance, they released their first single in 20 years for the upcoming Trolls movie And sparked rumors of a potential reunion tour.

Speaker 3

Our Joey Fatone AirSculpt initiative is just hitting the market and will build further momentum through Q4. Joey had AirSculpt on his full abdomen to remove stubborn fat hiding his abs, waist and obliques and to help him develop a more chiseled jawline. While Joey has wide appeal, we also believe there is significant opportunity to drive our penetration with men. We're becoming much more comfortable with aesthetic procedures and only make up 10% of our business. In summary, I am very happy with the company's performance, our focus on improvements and our long term growth prospects, all of which will provide meaningful value to all of our key stakeholders.

Speaker 3

With that, I would like to turn the call over to Dennis to provide further details on the quarter.

Speaker 1

Thanks, Todd. Our revenue for the quarter was $46,800,000 a 20.3% increase over the prior year quarter. Our growth is led by approximately 19% increase in our case volumes, which was primarily due to the addition of 7 de novo centers versus the prior year base. As of September 30, 2023, we operated 27 centers versus 20 at the end of the Q3 of 2022. Our same store revenue grew by 5.3% from the prior year period, which was in line with our expectations and mostly driven by volume increases.

Speaker 1

We continue to be encouraged by the demand we are seeing and we expect to achieve mid single digit comp growth in the 4th quarter. While we are pleased with our recent same store revenue growth, we continue to believe that the opening of new centers remains the primary growth vehicle for AirSculpt. Average revenue per case for the quarter was $13,658, a 1.1% increase over the prior year's quarter $300 increase over the Q2 of 2023, driven primarily by our procedure mix. While we continue to target a $12,000 to 13 Our percentage of patients using financing to pay for procedures was approximately 50% during the quarter. This was a slight increase over recent quarters as we've added new financing vendors to our mix of offerings to patients.

Speaker 1

These new vendors have higher financing approval rates and allow patients to potentially finance higher dollar amounts Just as a reminder, we received full payment on all of our procedures upfront, and we do not have any recourse related to patients who finance Our cost of service as a percentage of revenue was 38.8% versus 38.3% in the same period last year. And our customer acquisition cost for the quarter was approximately $2,750 per case as compared to $2,650 in the prior year. As Todd mentioned, given our strong top line performance this year, we chose to further invest in our brand awareness activities, which is reflected in our We continue to expect our customer acquisition cost to decrease over time as we begin to benefit from these and other brand awareness initiatives. For the quarter, our adjusted EBITDA was $9,100,000 compared to $8,100,000 from the prior year period, an increase of 12.2%. Our adjusted EBITDA results now include the impact of pre opening costs for de novo centers in our calculation.

Speaker 1

This impact was approximately $500,000 in the current quarter Our adjusted EBITDA margin was 19.4% compared to 20.8% in the prior year quarter, A decline of 140 basis points. Our margins were impacted by 200 basis points related to our brand initiative investments during the quarter. Additionally, we saw a 90 basis point impact related to investments in our executive team. From a liquidity standpoint, our cash position as of September 30, 2023 was $8,700,000 and our $5,000,000 revolver remains undrawn. During the quarter, we voluntary prepaid $10,000,000 on our outstanding term loan debt.

Speaker 1

This decision was made as a result of our strong free cash flow generation, which allowed us The flexibility to opportunistically strengthen our balance sheet and reduce our interest expense going forward. Our gross debt outstanding was $73,400,000 And our leverage ratio at the end of the quarter as calculated under our credit agreement was 1.6 times. Cash flow from operations for the quarter was 600,000 Quarterly tax payment of $3,500,000 Additionally, cash paid for interest increased approximately $135,000 over the prior year quarter due to the increase in interest rates. And we expect to achieve cash interest savings of approximately $750,000 annually going forward, reflecting the recent debt prepayment. Also during the quarter, we invested $2,100,000 primarily related to opening new centers.

Speaker 1

We remain on track to post healthy free cash flow generation in 2023 and expect our cash flow from operations to adjusted EBITDA conversion ratio to be in the range of Additionally, we provide a non GAAP measure reflecting adjusted net income per share diluted for the quarter

Speaker 4

of $0.05

Speaker 1

We believe this measure presents useful information to investors by highlighting the impact to earnings per share of selected items used in calculating our adjusted EBITDA. In early October, we announced an update to our 2023 revenue, whereby we increased our 2023 revenue forecast to $196,000,000 versus the prior revenue guidance range of $187,000,000 to $192,000,000 This morning, we are reconfirming our We are also reconfirming our revised 2023 adjusted EBITDA guidance of at least $45,000,000 Which was an increase over our prior forecast of $43,000,000 to $45,000,000 Our guidance implies an adjusted EBITDA margin of approximately 23%. With that, I'd like to turn the call over to the operator for some questions. Operator?

Operator

Thank you. The floor is now open for questions. The first question is coming from Josh Raskin of Nephron Research. Please go ahead.

Speaker 4

Hi, thanks. Good morning. First question is just pricing continues to come in a little bit better than expected. Could you just refresh us on the percentage of consumers that are adding And then is that pricing strength consistent across all the centers or a few outliers really driving that trend?

Speaker 1

Hey, Josh, it's Dennis. As far as add ons, our fat transfer Additions, which is our main add on, has remained pretty consistent about 20%, low 20% From that standpoint, so from that standpoint, it really hasn't it hasn't related to like add ons. It's just really Overall procedure mix has been pretty solid.

Speaker 3

Yes. Hey, Josh, it's Todd. Also, I'd add, it also tells us that there really Is there any kind of headwind or concern from an economic standpoint? I mean, people are coming and they're doing 1213. We've seen a little bit higher than that this past quarter, which obviously we're happy to see, but that's purely demand.

Speaker 3

But It fluctuates and will fluctuate based on demand. But obviously, we're happy to see it and it's a good signal to us that there's Not real any concern economically, broader economically affecting our business.

Speaker 4

And then just second question for me. I know Tom, you talked about centers opening in smaller geographies as opportunities you should I'm thinking about 2024 as an opportunity and I heard the comments about the new centers in Detroit and Kansas City. I know obviously Chicago are big market. So Those didn't strike me as sort of smaller opportunities. I'm just curious if you think that's a shorter term phenomenon or you think that's still more into the future?

Speaker 3

Yes. What I would say is, the nomenclature, I think, is probably not Best to say smaller. I think what I would say is there's plenty of opportunity for us to do centers that are comparable In AUV to what we've done historically, there's a lot of runway left for that. All that being said, we know that there are markets where there is probably to do a lower AUV that's still very healthy in return. And we're exploring those.

Speaker 3

That isn't necessarily our focus for next year because again, we have lots of runway of our Higher AUV de novos, but it's something that we're looking at and we're going to probably experiment with over the coming year or 2. The other thing I would say is, and I'll just double click on my comment that I made before, which is The opportunity also to open multiple locations in a given geography is going to be really significant for us. To have one location in a market like Chicago where we have today, it's a very big market. Now, as I noted, we're going to be opening up a second location there. So It's not only an opportunity to drive growth, but it is an opportunity for us to drive brand awareness, to drive efficiencies of operation.

Speaker 3

So that's really the way we're thinking about it. But that smaller de novo opportunity is something that we're still kind of Looking up, it isn't necessarily on our short term radar.

Speaker 4

All right. Thanks again.

Operator

Thank you. The next question is coming from Corrine Wolf Meyer of Piper Sandler.

Speaker 5

In terms of how many patients will add that on their procedures and what kind of pricing upcharge is that compared to like a standard treatment. Thank you.

Speaker 2

Thanks. It's Aaron Rollins. First of all, I see almost every patient that gets Aeroscope as an Aeroscope lift candidate because most of our patients Get other cosmetic procedures. Very few of our patients are complete cosmetic procedure or aesthetic versions. And to throw away their fat and get artificial fillers when we know they're probably not the best thing for you Seems ridiculous to me.

Speaker 2

So I mean, I think the opportunity is great. It's something that we have to roll out. It's something we have to market. Right now, we're doing a good job of training our doctors. We're now training our sales And we're training our doctors to explain it to patients as well in a consult.

Speaker 2

From a pricing standpoint, we made it priced very attractively. It's about the same price as a regular filler. So it's $1500 per area. So on a volume basis, I'm sure you know Fillers, you only get 1 cc kind of per monetary increment. So we don't We can give someone as much as many CCs as they need for a particular area.

Speaker 2

So it's great value. And as I'm sure you know, it lasts longer. And we think it's a far healthier option. So that's the most I can tell you right now. We don't have financial projections for it yet.

Speaker 2

It's a little early for that. But we're very excited about the opportunity, and I'm sure many of you have Seeing the articles at least in the British papers about fillers and lymphatic drainage. So It's something we're watching keenly.

Speaker 5

Very helpful. Thank you. And then if I could just touch on The SG and A and kind of the marketing spend that you're doing, I mean, the CAC continues to come up even though you say it's When we're going to start seeing some better leverage in OpEx and when we'll start seeing that CAC start to come down. Is that really going to be like a 2024 event, maybe push to 20

Speaker 1

Hey, Corinne, it's Dennis. Yes, thanks for the question. One of the things that we did call out is we did some Really kind of our first time into what we would call a little bit more major brand awareness activities with our Ginny McCarthy and as Todd also pointed out Joy Fatone. And so those impacted our numbers in the quarter. They were a little bit more of a, what I would Call one time type events.

Speaker 1

It doesn't mean that we're not necessarily going to do them in the future and do more of those potentially. But from the standpoint of comparison, it was kind of a one time event. It cost us about 200 bps from that standpoint as far as margins are concerned. That's one aspect of it. We do believe that brand awareness is our number one opportunity for driving Significant, particularly same store growth.

Speaker 1

Obviously, de novo growth has been our major growth factor, but Brand awareness is going to be significant for us, and we've been heavily, heavily focused on that. So that's one aspect of it, which caused the CAC to go up a little bit during the quarter. That's going to fluctuate. It's going to fluctuate with seasonality. It's going to fluctuate with volume, and it's going to fluctuate with, Todd talked about last quarter and again in his remarks today, we've done a lot of work in sort of building out the Executive team.

Speaker 1

And so that cost us about 90 basis points comparatively speaking there from the standpoint. And so those are Primarily complete now. And so as we continue to grow revenue, those costs are now going to be part of a fixed number. And so

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Magazine for closing comments.

Speaker 3

Great. Well, we appreciate everybody joining us this morning. We hope you have a great weekend and we look forward to Thank you again very soon. Take care.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or block off at this time and enjoy the rest of your day.

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Earnings Conference Call
AirSculpt Technologies Q3 2023
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