AirSculpt Technologies Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

There are 6 speakers on the call.

Operator

Hello, and welcome to the Airscope Technologies, Inc. 1st Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dennis Dean, Chief Financial Officer. Please go ahead.

Speaker 1

Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies' results for the Q1. 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 this morning and in our most recent 10 Q, which will also be available on our website. With that, I'll turn the call over to Todd.

Speaker 2

Thanks, Dennis. Good morning, everyone, and thank you for joining the call. We delivered approximately 4% revenue growth in the quarter versus the prior year, which was driven primarily by contributions from the de novo centers opened in 2023. These centers continue to outperform our internal metrics. However, we did experience some softness in our same store centers, which was related to temporary macroeconomic headwinds, which affected a portion of our customer base that tends to be more price sensitive.

Speaker 2

The challenges we are experiencing are consistent with those highlighted by others in the aesthetic and high end consumer retail spaces. As we noted on our last call, we saw some isolated softness exiting 2023, which carried into the Q1. Our revenues have picked up as a result of our typical seasonal pattern, but the degree of the seasonal increase has not been up to the level we have seen in prior years. This drove overall same store revenue down approximately 10% during the quarter. Our Q1 adjusted EBITDA was 7,300,000 dollars which is a decline from the prior year period.

Speaker 2

As we mentioned on our last call, we anticipated the EBITDA decline both due to recent revenue trends as well as higher SG and A spending. The higher SG and A spending was a result of increases in paid search costs, mostly due to increased competitive spend as well as our higher investment in customer awareness building. As we are now in the early part of Q2, which is the height of our season, we are still tracking behind our internal revenue projections. As a result, we expect our year over year revenues for the quarter to be somewhat flat or slightly below prior year. Despite our recent trends, we are not making changes to our guidance at this time.

Speaker 2

That's because we are cautiously optimistic that the trends will improve in the latter part of our season and into the second half of the year. This optimism is related to 1, our significant investment in customer acquisition marketing 2, changes we made to our media mix 3, optimizations we've made to performance marketing 4, continued outperformance of our 2023 de novo class and 5, our confidence in the 2024 de novos. Let me double click on our marketing and de novo efforts. We have seen some very promising improvements to our lead generation as a result of some changes we made to our media mix. This is driving a higher percentage of organic search traffic.

Speaker 2

These leads have higher intent and are lower in cost compared to paid search. But given the length of time that it takes to convert leads to an actual procedure, these improvements are only now starting to impact our actual procedure volume. We have also evolved our celebrity partnership approach to provide a more consistent stream of relevant earned media impressions. Most recently, we worked with Kristin Doughty, a podcast host, entrepreneur and star of 2 Bravo hit shows, The Valley and Vanderpump Rules. Kristin did Stomach Air Sculpt, which drove over $3,400,000,000 earned media impressions and contributed to year on year growth in direct and organic traffic to our website.

Speaker 2

In addition to garnering new leads, celebrity testimonials have also proven to be a strong lever to reengage and convert existing leads. As for our 2024 de novos, we remain on track to open 6 locations with 4 openings projected in Q3, the first of which is Kansas City, Kansas. We remain highly optimistic about these locations given the improved analytics work we have done on de novos in the last year. Finally, we continue to focus heavily on our cost management efforts. We exited the year with a $5,000,000 run rate in cost savings and have identified further opportunities to achieve even greater efficiencies.

Speaker 2

We have and will continue to use these savings to further support our customer awareness strategies for the remainder of the year. In summary, we remain focused on the longer term success of the overall business and are prudently investing in this outlook. We are closely monitoring our performance and will continue to build the Erskol brand, open new centers and enhance our profitability. Now I'd like to turn the call back to Dennis to provide further details on the quarter. Dennis?

Speaker 1

Thanks, Todd. Our revenue for the quarter was $47,600,000 a 3.9% increase over the prior year quarter. Our growth was primarily due to the contribution of new de novo centers versus the prior year base. As of March 31, 2024, we operated 27 centers versus 23 at the end of the Q1 of 2023. Our same store revenue was down 9.8% in the quarter.

Speaker 1

As Todd mentioned, we attributed the softness to weaker than expected performance across the broader aesthetics and consumer retail landscape, particularly related to customers that are more price sensitive. While we are seeing similar trends in the Q2, we expect to see some improvement as we move through our later seasonal months and into the second half of twenty twenty four. Our average revenue per case for the quarter was 12,712, a 1% increase over the prior year's quarter. And our percentage of patients using financing to pay for procedures was approximately 50%, which is consistent with recent quarters. As a reminder, we received full payment of all procedures upfront and we do not have any recourse related to patients who finance their procedures with 3rd party vendors.

Speaker 1

Our cost of service as a percentage of revenue was 37.9% versus 39.3% in the same period last year. This improvement was the result of our cost management initiatives, which continue to be a focus for us. As a reminder, we were able to achieve $2,500,000 of actual savings in 2023, and our current 2024 outlook includes an incremental $2,500,000 of savings for a total of $5,000,000 and we see additional opportunities to further increase our savings in the second half of twenty twenty four. Our customer acquisition cost for the quarter was $2,990 per case as compared to $2,360 in the prior year. This increase, as Todd mentioned in his remarks, is due to further investments in our brand awareness activities.

Speaker 1

We expect our CAC to stay at an elevated level in the second quarter as we expand these initiatives. For the Q1, our adjusted EBITDA was approximately $7,300,000 compared to $9,500,000 from the prior year period, a decrease of 22.4%. Our adjusted EBITDA margin during the quarter was 15.4% compared to 20.6% in the prior year quarter. This decrease was primarily associated with our investment in new customer acquisition and brand awareness initiatives. Our adjusted diluted net income per share for the quarter was $0.03 Our cash position as of March 31, 2024 remained healthy at $11,000,000 and our $5,000,000 revolver remains undrawn.

Speaker 1

Our gross debt outstanding is now $71,200,000 and our leverage ratio at the end of the quarter is calculated under our credit agreement was 1.47 times. Cash flow from operations for the quarter was $3,400,000 compared to $6,200,000 in the prior year quarter. The decrease is primarily due to the decline in adjusted EBITDA. Also that during the quarter, we invested $1,600,000 which was mostly related to new center openings. For the quarter, our cash flow from operations to adjusted EBITDA conversion ratio which was in line with our expectation for the quarter.

Speaker 1

As Todd mentioned in his comments, our Q1 was softer than we expected and the Q2 is seeing similar trends. However, we are seeing positive signs in lead volumes from our recent marketing initiatives. Furthermore, we continue to see over performance in recent de novo centers and expect strong openings in the new fleet of centers that will come online in the second half of the year. As a result, we are maintaining our full year outlook of revenues $220,000,000 and adjusted EBITDA of approximately $50,000,000 With that, I'd like to turn the call over to the operator for some questions. Operator?

Operator

Thank you. Our first question today is coming from Josh Raskin from Dufferin Research. Your line is now live.

Speaker 3

Hi, thanks. Good morning. So I understand 1Q is seasonally lower and you talked about some of the pressures. But I guess if you look at the full year guidance, EBITDA, it implies 1Q EBITDA is only 15% of the full year. Historically, Q1 has been closer to 22%.

Speaker 3

And then I hear sort of assuming cautious optimism in guidance, I guess, why are you assuming cautious optimism if we've seen softness in procedures over the last two quarters? And I guess what does guidance look like if that cautious optimism doesn't come through, right, if you sort of just run rate where we are in 2Q?

Speaker 1

Hey, Josh, it's Dennis. So yes, one of the optimistic aspects of what we're looking at really, really hinges on marketing endeavors that we've been implementing during the quarter. It's again, it takes a while for leads to convert to cases and we're seeing a fairly sizable uptick in our lead volumes as a result. So that gives us one portion of optimism. Our 2023 de novos are significantly outperforming where we had expected them to perform.

Speaker 1

So we're very excited about that. And we're basically using a very similar plan for the 2024 deals that are coming online. As you remember or probably remember a year or so ago, we kind of started implementing sort of what we call a quick ramp from our de novos and I believe what's accelerating these things to open up and perform better than we had originally expected. So those three things, the 2024 class all coming on the second half of the year, I mean, that's obviously going to drive growth differences from what we've seen in previous years.

Speaker 3

And I guess, Dennis, embedded in that, what are your assumptions for same store case growth maybe starting just in 2Q, but even for the full year?

Speaker 1

Sure, sure. So what we're looking at from that standpoint is kind of seeing a consistent case aspect for the 2nd quarter, high single digit decline somewhat similar to where we finished the Q1. We start to see that improving in the Q3, getting close to flat and then getting toward the mid single digits in the Q4. One of the things, if you recall, last in the Q4 of last year, we had a couple of centers that hit a pretty large hiccup in the process. And so we've done some things there, done some recruiting and those things are improving.

Speaker 1

So we think we'll be able to not have that issue. So think comp for Q4 of last year is relatively from a low standpoint, so it's a lower comp.

Speaker 3

Okay. And then maybe just last one. Are you at the point where you're thinking about more aggressive promotion or discounting specifically just on the because price is holding up better. So I'm just curious, are you guys thinking about the sort of supply and demand curve and taking down the price and seeing if that increases case volume?

Speaker 2

Hey, Josh, this is Todd. I would say we're doing it very selectively and targeted. We don't want to obviously devalue the brand and go out with kind of broad price reductions, but we're very selectively and very specifically using those in kind of retargeting and through email and text offers, etcetera, etcetera. So we are doing that. I mean, we've as you know, we've relied heavily on the kind of buying more, save more and that's been very beneficial for us.

Speaker 2

But we don't want to kind of we don't want to go down too much. I just think ultimately we don't devalue the brand and we start bumping into other types of competitors, which I don't think really makes a lot of sense for us. So I think we want to continue to be very selective in those price discounting.

Speaker 3

Okay, makes sense. Thanks.

Operator

Thank you. Next question today is coming from Corrine Wolfmeyer from Piper Sandler. Your line is now live.

Speaker 4

Hey, good morning team. Thanks for the question. I'd like to touch a little bit on the CAC and the lead generations you're seeing from this your increased marketing sense? The CAC was really high this quarter.

Speaker 3

At what

Speaker 4

point will that start coming down a little bit more? And then can you provide us some color on these early customer leads you're getting from all this heightened marketing spend? Just to give us a little bit of confidence that maybe once we get to the back half of the year that case volume will improve? And how are you shifting the marketing strategy over the course of the year? Thank you.

Speaker 2

Yes. Hey, Corinne, this is Todd. So what I would say is, obviously, we believe in the business long term, which is why we're heavily investing in lead gen. Our cost basis has definitely gone up. A lot of that is due to just competitive activity.

Speaker 2

But there's a few changes that we've made that seem to be really the early signs are very, very promising, which is what is giving us the optimism. Number 1, we've kind of historically, we've relied very heavily on paid search. It's been kind of the majority of our kind of lead gen efforts. We're starting to diversify away from that solely. And so we've been experimenting with connected TV, display media retargeting.

Speaker 2

In some markets, we've done some radio and outdoor. And what we're seeing actually is more organic search, which obviously is very promising for us. So ultimately you're seeing more people come to us as opposed to us to ultimately go out and kind of buy those leads if you will. So that's very encouraging and we're seeing that part of it. The second is what a new initiative or kind of doubling down on an initiative, which is what we call existing or aged leads.

Speaker 2

We have a lot of people, kind of in our databases that obviously are interested but have not converted. A lot of our effort over the last year or so has been put against people that are first coming in those kind of fresh leads. We have all these leads that we can go after and try to convert. So now with some of our analytics tools, we're able to get to them a little bit more selectively and we're seeing some very promising improvement there. And then lastly, just optimization of our paid search, I mean, it will remain a key lever for us, excuse me, but we're always trying to kind of optimize the spending and make sure that it's more efficient and more targeted.

Speaker 2

We're doing things with zip codes, get to the right people and getting the right messages to the right people. So there's a lot of changes that we've made. And again, the early signs, as Dennis pointed out, leads are really just kind of the leading indicator. Obviously, those ultimately to convert to sales and then eventually to procedures. So the early indication on leads, which are improving, but it's also just quality of the leads that we're seeing, which are a lot of them are coming from organic search, which tend to be kind of higher intent consumers.

Speaker 2

So that's kind of the headline, I would say, on your question related to CAC. In the short term, our CAC is going to remain high. We are keeping our foot down on the pedal to drive that revenue. But over time, all of these changes that we're making should ultimately enable us to be much more efficient in our spending. In general, if you're going to get more organic search as opposed to paid search, that is going to be much more efficient.

Speaker 2

So a lot of the diversifying that we're doing in media that's driving more of this kind of organic lead gen over time will enable us to start to take our CAC down over time and obviously, that will ultimately be our goal.

Speaker 1

One thing I would add to Corinne is that our cost initiatives, rather than just kind of keeping those at the EBITDA level, we're kind of reinvesting back that into marketing. So that's again the initiatives that we've done. We've just said, hey, this is a good opportunity to use these excess resources and to put back into the marketing efforts. And we expect as we continue to identify initiatives through the year from a cost standpoint, we'll likely do a similar process.

Speaker 4

Very helpful. Thank you so much for all that color. And then just to touch on the GLP-one issue, We are seeing more offerings or more better accessibility for people to get GLP-1s. Do you still view that as more of an awareness driver versus demand taker for AirSculpt or is there any change in thinking there? Thank you.

Speaker 2

Look, all of our research would say that GLP-1s are ultimately a tailwind for us. We're seeing a lot of patients come to us who are either interested in weight loss medication, but they and we've been doing a lot of marketing on this as well. The combination of weight loss medication and AirScopes seem to be very, very powerful. So are there some people that maybe would have come to us and they went to weight loss medications? Possibly.

Speaker 2

There's also a lot of people coming to us and they discovered us because they started to investigate weight loss medications. And so, ultimately what we're seeing is a very symbiotic relationship and it's so far we're looking at it very much as an opportunity and as a tailwind as opposed to something that is a major risk for us. So we continue to look at it as something that's going to ultimately help us over time.

Speaker 4

Great. Thanks so much.

Operator

Thank you. Next question is coming from John Ransom from Raymond James. Your line is now live.

Speaker 5

Hey, good morning. Just talking about the Q2, this is your big quarter historically. Do you usually see this late of a start? Is the quarter back end loaded or are you kind of like for like off to a slower start versus say the last couple of years?

Speaker 1

Yes. So John, I mean that the timing of when the quarter or when season starts is always difficult to manage. Last year, it started in March. This year, it is more of a delayed start. And so that's a little bit of a difference from a timing perspective.

Speaker 1

And so as we talked about is the lead gen and the impact that we're seeing there, it's a little bit later in the typical season flow that we've seen in the past. So will that kind of allude to maybe a season that kind of moves further into the summer? Right now, we just don't know. But that's if the season is season for the number of months, then ones would suggest that would be the case. Okay.

Speaker 5

And then secondly on marketing, I mean, I appreciate all the comments you're making about that. But we've been hearing for a couple of years now about how you're pivoting from the Instagram channel to something more brand awareness and celebrity endorsements. Just looking in the rearview mirror, how would you critique your own performance in terms of that transition? And what maybe should have been done that hasn't been done so far? Thanks.

Speaker 2

Yes. Look, it's a good question. I would say, generally, these are changes that have to be made over time. We historically have been heavily, heavily reliant paid search as our driver. As you know, last year, we started to do some celebrity marketing, which definitely helped.

Speaker 2

We saw some definite improvements in awareness building. But what we saw, particularly as we were using some of these bigger celebrities is that we would get the spike and then it would come kind of come back down. And as I mentioned in my prepared remarks, some of the changes that we're making now is kind of doing this rather than kind of a couple of big celebrity relationships or partnerships over a year. How do we do this as kind of more of a string of pearls? So maybe smaller celebrities, but more frequent.

Speaker 2

And we're also finding with some of these smaller celebrities, they have a huge social following and that's actually been very beneficial to us. So I think it's been an evolution. I think we've been moving it in the right direction. I don't think anybody would have anticipated the kind of market changes that have happened. So that I think has been the biggest factor.

Speaker 2

But I think generally, we were moving in the right direction. I think we're kind of now in the optimization and we're continuing to diversify our media and I think that's proving to be very beneficial evaluate as we make these changes and hopefully it will continue to drive to evaluate as we make these changes and hopefully it will continue to drive the growth that we need.

Speaker 5

Just lastly, I mean, we're calculating some pretty grim same store numbers. Are there any locations now that are unprofitable? Do you foresee any closures? Are all your location still profitable even if the volumes down?

Speaker 1

Yes. All of our locations, John, are still generating a profit. So nothing from that standpoint. I would say the London Center is slower from a ramp standpoint as we continue to learn through that market. So it's not ramping up from a profitability standpoint like a typical center that we have, take the rest of the 20 23 cohorts, it's not ramping up to the same degree as those are.

Speaker 1

But all the centers continue to be profitable. And so no reasons at all to consider closing any.

Speaker 2

Yes. The only comment I'd make on London, I mean, it's definitely look, international markets, particularly in Europe, I mean, there's definitely a learning curve. I think there's a lot of things that we've definitely learned, but we continue to be incredibly optimistic about the market. It just might take us a little bit longer to kind of get it all figured out. But once we do, we think that is going to be a very strong center for us.

Speaker 5

I mean, my editor will comment that the next healthcare company on the services side that has a good outcome in London might be the first. It's been a trail of tears for a lot of your peers to run into that market. So you're not alone, so, editorial comment. Thank you.

Speaker 1

Thanks, John.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker 2

Thanks everybody. We will talk to you in a few months and have a great weekend.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Powered by Quartr

Key Takeaways

  • AirSculpt delivered 4% revenue growth in Q1 2024 to $47.6 M, driven by new de novo centers, while same‐store revenues fell ~10% amid macroeconomic headwinds affecting price‐sensitive customers.
  • Q1 adjusted EBITDA declined to $7.3 M (15.4% margin) from $9.5 M (20.6%) due to weaker same‐store performance and higher SG&A spending on customer acquisition and competitive marketing.
  • Changes to the media mix and a shift towards organic search traffic, along with more frequent, targeted celebrity partnerships, have boosted high‐intent lead generation, with conversion effects expected in later quarters.
  • AirSculpt remains on track to open 6 new de novo centers in 2024 (including 4 in Q3) and is confident in their performance based on improved analytics and strong results from its 2023 cohort.
  • The company maintains its full‐year guidance of ~$220 M in revenue and ~$50 M in adjusted EBITDA, citing cautious optimism from marketing investments, de novo outperformance, and ongoing cost‐saving initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
AirSculpt Technologies Q1 2024
00:00 / 00:00