AirSculpt Technologies, Inc.

Q4 2022 Earnings Conference Call


spk_0: good morning and welcome to air scope technologies fourth quarter two thousand and twenty two earnings conference call currently all participants are no listen only mode as reminder today's call is being recorded and we have allocated one hour for prepared remarks and una at this time i like a the over to the dentist dean chief financial officer air scope technology thinking you may begin
spk_1: the more you everyone in thanks for joining us to discuss our scope technologies results with fourth cool joining me on the call today is the company's founder and executive chairman doctor and 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 the statements may include our future expectations regarding financial results and guidance market opportunities and our road risk and uncertainty that may impact these statements and could cause actual results to differ materially from currently projected results are described in this morning's press release and the reports we will fall with the se si all of which can be found on our website at investors dot elite body sculpture dot com we undertake no obligation to revise or up the any forward looking statements or information except as required by law during our call today will also reference certain nine get financial measures we use non get measures and some of our financial discussions as we believe a more accurately represent the true operational performance and underlying results of our business a reconciliation of these measures can be found in our earnings release as fall this morning and an our most recent ten k when filed which will also be available on our website with that i'll turn the college the doctor hours aaron
spk_2: good morning and thank you for joining us on the call today during the fourth quarter we experienced a healthy bounce back compared to the third quarter in our revenues and procedure volume that by strong contributions from our de novo centers are most recent cohort of new centers which includes boston toronto in philadelphia is off to a good start and we're very excited for the upcoming launch of our flagship london location we continue to be incredibly please of the patient enthusiasm around oliver offerings including air scope plus and their scopes smooth and we look forward to introducing additional innovative solutions that meet the needs of our patients or team accomplished a lot and twenty twenty two the company's case volumes increased eighteen percent revenue increased twenty seven percent and regenerated cash from operations of nearly twenty five million we refinanced our debt which will generate considerable interest cost savings we added forty centers and aggressively built de novo pipeline i'm positioning us for five openings this year we started our international efforts with or to run opening as well i'm also excited to share that we grew our earn media share of voice from less than one percent in early twenty twenty two to thirty percent in recent months this incredible performance was driven by the pr we generated through our influence or partnerships and as a model we will be accelerating in the coming year we will share more details on this exciting area of opportunity as we progress throughout the year at the beginning of the year we were very excited to announce the appointment of todd magazine as or chief executive officer taught over thirty years of experience and brand building and retail operations including over a decade as ceo of blink fitness a national fitness chain created by the executives at equinox the luxury leader in the fitness industry todd upscale blame from four locations when he joined the well over a hundred during his tenure he bring strongly are supposed for a team and he has an excellent addition as risk of moves what's next phase of scaling growth both domestically and internationally as previously announced i have transitioned to executive chairman of the board of directors and my focus and attention will be to work with todd and a leadership team on vision strategy clinical excellence and technological innovation i plan on remaining active in discussions with the financial community as well with that let me introduce todd to discuss more about why he joined or scope and it's near term focus
spk_3: thank you aaron and thank you to everyone on the call for joining us today i look forward to talking with many of you in the coming weeks and months let me start my comments by showing why decided to join or scope i didn't know the company i quickly learned to lots to the diligence that it was an incredible opportunity first i learned that it's a revolutionary procedure that transforms people's appearance virtually overnight which to me was mind boggling given my time in the fitness industry and seem incredibly high failure rate of people who spent years trying to change their appearance turkey and i discovered it airs sculpt is truly in a category of one no company or technology can do with our school can do which enables us to recruit some of the very best plastic surgeons in the world third i learned that our unit economics of very strong with the know the locations that get to profitability within their first year and provide a significant return on invested capital and finally i learned that the tell wins in the broadly defined statics category are very strong with a tremendous runway of opportunity despite all of this i also learned that our brand awareness is still not where it needs to be and our footprint is just scratching the surface of all the opportunities that exists domestically and internationally
spk_1: as you would expect my focus over the coming months is to help the team deliver on our top and bottom line goals however i will also be focused on three critical strategic areas first we will strengthen the organization by bringing an additional talent and improving or processes
spk_3: jack and we will focus on revenue growth which includes ramping up or de novo expansion program and third you will right size or cross kutcher and strengthen our capabilities to support a much bigger and more robust fleet of centers i joined the company because i saw an opportunity to make our sculpt the undisputed leader in the global body countering space now that i am part of the team and even more confident that this objective is well within our reach i look forward to leveraging my experiences of building brands and scaling businesses to help doctor rollins and the to talented the team and or skulk growth stakeholder value in a minute dennis will walk into a fourth quarter results as well as or guidance for twenty twenty three of before i turn things over to him i'd like to share a few high level comments or fourth quarter revenue was in line with our guidance and a significant improvement vs are prior quarter and or for fourth quarter last year this performance demonstrates that the softness we experienced and que three was an anomaly particularly given the fact that we have seen on momentum from to for carry into que one of this year fact i'm happy to report that we are on track to meet our first quarter revenue expectations turning to queue for profitability we were impacted by the investments we made and twenty twenty two to bolster our infrastructure objectively the company got a bit ahead of it's keys on these investments and did not make a proper adjustments fast enough to impact our end of your financials as i stated previously right sizing ca structure will be a top priority of mine we will share more details on this area as we progress throughout the year looking forward we are committed to delivering very strong year over year growth on both the top and bottom line
spk_1: with margin expansion in the back half of the year driven by our cost management initiative
spk_3: let me now turn the call of or to dennis to walk into a financial center outlook for the year dennis
spk_1: thank you tired or revenue for the quarter was forty point seven million and eight point four percent increase over the prior quarter our growth was led by approximately sixteen percent increase in case volumes which is primarily due to the addition of for de novo centers are says the prior year base as of december thirty first two thousand twenty two we operated twenty two centers versus eighteen at the end of twenty twenty one i wrap our average revenue per case for the quarter was twelve thousand two hundred and six percent decrease over the prior years quarter driven by both procedure make sense and promotional activities that was still within our target range of twelve thousand and thirteen thousand dollars the saw in the first quarter of twenty twenty three we're seeing an average revenue per case at the midpoint of are projected twelve to thirteen thousand range our cost of services a percentage of revenue was thirty eight point seven percent versus thirty four point eight percent in the same period last year the increase is primary related to the addition of clinical staff to support our growth which todd spoke of in his remarks and our customer acquisition costs for the quarter was approximately twenty three hundred dollars by the quarter or adjusted ebitda was nine million in are adjusted ebitda margin was twenty two point one percent which was a decline versus the prior quarter and lower than our expectations probably due to our revenue per case being on the lower end of are projected range and a lack of progress related to right sizing some of our infrastructure costs our liquidity position continued to be very strong our cash position as of december thirty first two thousand twenty two was nine point six million and our family and all revolver remains and drawn our gross outstanding debt was eighty five million in our leverage ratio at the end of the quarter is calculator under our credit mean that was one point seven five towns cash flow from operation for the quarter was six point six million which represents an adjusted ebitda conversion ratio of seventy three percent for the four year two thousand and twenty two are conversion ratio was fifty six percent we invested two point two million primarily related to opening new centers and what he had a use of cash from financing activities of approximately two point four million primarily due to tax related payments really the certain vesting of equity based compensation in our earnings release this morning we provided a non gap measure reflecting adjusted earnings per share diluted for the quarter of seven cents and thirty seven cents for the four year we provided this measurement as a result of our interactions with shareholders and believe this presentation presents useful information to investors are high in the impact to earnings per share of selected items used in calculating are adjusted ebitda we expect another healthier a free cash flow generation and two thousand and twenty three with improved adjusted ebitda conversion ratio the to our focus on margin expansion we expect our primary uses of cash flow will be to fun growth investments for the business such as adding de novo centers and driving technology innovations we also expect to continue to strengthen our balance sheet throughout the rest of the year positioning us to consider stock buybacks debt pay down and dividends this morning we entered a start twenty twenty three revenue guy that's range of one hundred and eighty seven to one hundred and ninety two million representing eleven to fourteen percent increase over two thousand and twenty two we expect contributions from our de novo centers to drive the magnitude of the year over year revenue growth we expect open our austin by i'm locations later this month and we are on track to open our flagship location in london in may our final two to know both rally in san jose are expected open late in the third quarter which will give us a total of five new centers added in two thousand and twenty three are just city but guidance is forty eight to fifty million which represents year over year growth of eleven to sixteen percent and margins of approximately twenty six percent at the midpoint of both revenue and he dug guidance underpinning our guide into the expectation that the second quarter will continue to be our strongest quarter while we expect the seasonal patterns in the back half of twenty twenty three to be similar to that of the back half of twenty twenty two as we are almost two and a half months into the first quarter we're also providing a first quarter revenue outlook of approximately forty three million and adjusted iba die of approximately ten million with that i like to turn the call over the operator for some questions operator
spk_0: thinking if you'd like to ask a question please press star one i knew telephone keep had a confirmation will indicate your line is in the question can you i start to as he like to remove your question from the camp for participants using speaker equipment he may be necessary to pick up your handset before passing the start our first class incomes maligned as the mean that with morgan stanley please proceed to class
spk_4: thanks everyone could morning michael a my first question is on relationship between case and or volume and then to do centers or new facilities at one point spread was greater meaning like a time or money greater than the number of new openings now it's left my question is how should we think about that relationship or granted that new centers are not opening on a hunch percent productivity but should that be something that the to metrics or narrow overtime
spk_1: i think so the question semyon so from a from a de novo outlook oh yum the majority of our case volume increases are still coming from from those facilities one from you know centers that we've opened up in the quarter but also to from those centers that aren't quote in our same store metric that are still continuing to ramp up so we're seeing the majority of our our volume increases from those are but i would point to also semyon you know when you look back at the third quarter you know our same store volume was a about seven point six percent off of the prior year and in the fourth quarter were actually one point one percent op's i think it just kind of shows that we have a healthy bounce back not just in adding that know those but also in our your existing centers
spk_4: and then a quick follow up top todd mention some expense expense items destitute to to sharpen up can you talk about expands items you mentioned there were some promotional initiatives that get that that hurt revenue vegas bledsoe margin i'm anything else about the economics of this business that can be tightened up as the growth story continues
spk_3: i still managed to time magazine how you join yellow me just take a real quickly and we really the focus for for me and the team is going to be really those areas from of our piano that have really been growing at a faster rate than our revenue growth so your that's our that's our focus areas as i said i'm i i'm eye opening comments you know we got a little bit ahead of ourselves in terms of some of those investments and were taking a hard look at at those areas that are growing faster than or toppling growth and you know we're gonna we're going to go hard at those and really try that her to make some progress they're particularly as we know exit the year the to get some margin expansion so that that's really our focus right now
spk_4: okay
spk_5: thanks to lock and everyone next week
spk_0: i think similar back
spk_6: thinking i next question comes mine of josh raskin with now on research please proceed with your question
spk_4: hi thanks good morning was unable to speak a little bit more about that change in rate in the corridor i'm curious if you have a sense of turn of you know if there if it exists or the same store same procedure pricing metric and then are there any geographic variations you know where the new centers that are impacting raid and then lastly i heard the promotional activities is that is that
spk_7: sort of traditional discounting or or is that will a bit different and is that promotional activity new relative to what you seen in the past
spk_1: i thanks josh yeah from a right perspective ya it if you kind of look through the quarters you'll see there's a lot of variability with an r rated it bounces from quarter to quarter couple reasons for that obviously acuity and the types of procedures the case makes in those types of things the we can't really control who walks in the door advices you know but yeah but that's that's a compounded of it and then we did take some promotional activities and know in the fourth quarter that that dear dad bring the right down a touch they are from what we had sort of forecasted ah we have projected sort of the be in our high end of our sort of projected range of twelve or thirteen thousand as you as you say that we came in on the low end of that and the off see that did give us a little bit of of revenue shortfalls from a right perspective as well and you know our our conversion metrics with an even dar so high that a little bit a rape did and
spk_2: packed from any the dust and port for sure and i'll just sit there and roll on a also for one let you know that we did do a lot of promotion in the fourth quarter and we did it because the data showed it works and adeptly drug case volume what we're going to do this year that's a little bit different as for working on different ways to promote taxi drivers p ah such as bundling arm and giving page
spk_4: you'd more value but for higher price point okay gotcha gotcha and then send questions just and you know the guidance for a bit i've yeah overall margin sounds like relatively flat in twenty twenty three i heard margin expansion may be in that second apps so maybe there's little compression and the first ep a can we just revisit that sort of bear able cost that versus fixed costs base and why we should
spk_1: expect more of that revenue growth to translate into either docs band margin expansion sure just up our kind of the variable component of first when you look at it from any but das damn point about fifty three percent of our costs are are variable so we still have very have their of component obviously the physicians and supplies would be the number one's there as well as as our advertising numbers but us yelp some of the expansion josh is is really related to us taking a more measured approach and our rates again as i spoke of brief previously or in the question and we have such a profitable profile on our revenue that l we took a little more measured measured response and how we looked at right going into next year we yeah we we think of twelve to thirteen thousand is kind of our range and we took the mid point which obviously as a little bit lower than where we finished out and twenty twenty two but damn learning it's opportunity force their and and clearly because of the profitability aspect of it it it's not giving us as much either die margin expansion is you would probably expect in utah talked about the add up the the constructs ca structure in the management of add yeah
spk_6: he obviously whenever you start looking a lot of things across the board at it takes a while and so that's why we're we're sort of assessing in the back half of the year of the impact there and we think we'll probably get a couple million and year for that potentially with they gotta run rate basis where we're looking close to five million so you know we're we're really taking a deep deep dive into that
spk_0: okay thank you
spk_8: thinking i next washington's mine of crime lost my with papers santa please proceed with your question and morning all the same question and potter and straight had to family packed yeah and i guess first question kind of bouncing off at that margin question expand a little that on what we should expect the and for gross margin to going for any as they take a pretty heavy stuff down
spk_1: when you feel is that and and a proper run rate we should be looking at going forward or what kind of expansion can be see their thanks for and we are extremely focused on a thirty percent margin we believe this business should be in that range or above that range a clearly this past year we've we've invested a significant amount nothing again todd his comments of his talked about that tell us how we've
spk_3: we know we've invested considerably and may be got ahead of ourselves a little bit they are so what that obviously impacted our margins in the current year but debit but again that thirty percent margin range is something we're extremely focused on and again we think it's it's definitely reasonable to look at it from a long term perspective your grand discard to nice to chat with you thanks the question the just have to add onto a dentist said know no we're pushing hard on this is dennis said we we think we could we could die young accomplish a couple million probably this year but you know we think on a runway basis as we return the the page on the calendar at the end of the year that that number should annualized her something closer to five million and so there were very focused on margin expansion oh and know i've looked at this in my relatively short time here and i would tell you that there's no reason this business couldn't have you know thirty plus margin and and and are focused really as to obviously continue to drive the the top line aggressively vita but also to really go i was they go after some of these investments that you don't need to be right size for a qa structure so
spk_8: you know where we're very focused their and i think we we forgot about going after that and we just need a little time to get get some of that does get some of that you know in the bank of the coming months and and quarters got it a try out by and then just going on some of that these new center yes talk about white years in terms of ram and pride kennedy as these new sadder than kind of like speaking in few expectation next year and then author kind of along that lines and what kind of visibility the you had in feel like in a potential teeth volume are gonna need me centers are declining a london one that's media
spk_2: and allow that more different and how at tradition family operated think yeah yeah this is aaron rollins high so or something that we are doing this year that we haven't done before and and vanier question is ah wait for of our dunno buzzes here actually opening up and states were already in and that gives us the opportunity to train our doctors are actually in the existing center and as date so that we can attempt to accelerate our de novo ramp or by instead of having two to three months of limited case volumes free cases for training eccentric cetera actually be doing real cases and real prices day one and this is our first foray into doing that but were able to do that and actually ford and overs as you're obviously london is a completely different story i'll tell you that are after after our calls today i'm off to london for ah press tour and i'd say this is the most robust de novo marketing we've ever had i have around twenty press interviews and london on sunday and we've never seen interests like this before we also have a wonderful doctor pipeline there are we just sign another wonderful doctor who were really excited about and i even one of our doctors from the u s is licensed in the uk and will be a pinch hitting their sometimes ah doctor delvecchio so i could tell you is that i i haven't been
spk_8: this excited about it to of in a long time and on the you know i i'm expecting really good things from london in terms of the london ramp you know there's no way i can really say what that's gonna lovely
spk_9: think that's right yeah i think so much and i can fight next week
spk_0: thanks me too
spk_10: thinking i next question comes from line of packers now with raymond james pleased to see what your question hey thanks for the question he has his parker on for john ransom and is going to go back on the promotional activities so is this centered around the new to know those in just trying to ramp up productivity when they're brand new or this and around some of the existing facility them a get them to trying to get out of their kind of weakening demand in the same store cohort or you just trying to kind of ramp up the new cohort and then descend going back on i believe previously can talk about how you have the ability to potentially raise price in the future but now you're maybe and talking talking that down a little been doing for promotional activities do to think about era
spk_2: it would you sing in the consumer in your ability to kind of race price or your your your price and and going forward tank i'll take that thanks for the question first of all the promotional activity has been across the board hasn't been off a specific and we've used it because or data showed that it was an impetus for people to get the procedure not that they wanted it or did not that they didn't want it but they perhaps would have delayed it and we we sought to be a very effective tool and the fourth quarter we did see a sixteen percent increase in case volume over the fourth quarter so ah it's it's been great however i think how we promote going forward is is something that we're working on in order to actually drive ah i'm a s p by giving patients more value but for a higher price point because if you want let's say your tummy done which is our bread and butter you have other areas to and if we can ramp up our a
spk_3: as and give the patient a little bit more value it's good for everyone him apart as title jumping on i am i'll tell you we're not seeing any indication of any kind of headwinds related to a macroeconomic ah challenges you know as we said before in the first quarter here you know how raiders is right back in line of where we historically had been an case volumes growing they they nicely so there's no indication that there's any you know headwinds broadly speaking yeah we feel very good about ah you know the prospect ahead so what would we feel we feel right now and have a pretty good
spk_2: pardon the we're excited about the balance of the year were also at right now for the first quarter right at the midpoint of our range
spk_10: so in terms of s p were right where we want to be
spk_2: okay
spk_11: and then you also mentions arm or any guys have been rolling out some kind of ancillary offering a skin tightening and a light how's that you know tracking just you know cross on going up song on customers in does anything that you can kind of no air
spk_2: i'm glad you asked something that's important understand about air scope plus a narrow scope smooth
spk_11: or is that it's actually meant as a case driver first volley want to be on the edge of technological innovation we wanna really offer the absolute best treatment in body countering that exists that's number one but what we've seen with it now that we have moon more quarters of experience is we're finding it's a case driver
spk_2: whereas patients with really loose skin would have been told the and i'll go get a tummy tucked are you know we can help you now we can we're also seeing new patients that we would never have treated before for say lights and we're also doing a risk of them the only the only thing to understand about it in a lot of these patients a don't aren't car typical patient that's you know let's say has areas all over their body they typically have let's say ah arms with like
spk_10: really loose skin and some fat instead of turning them away we can treat them but we're not doing their whole body so as a case driver it's been great and you know our as you see in that
spk_12: it really did right cases in the fourth quarter and we're seeing that trend continue in the first quarter
spk_2: i think so much
spk_0: thank you

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