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spk15: And welcome to the Beauty Health First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your questions, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Eduardo Rodriguez, the Senior Director of M&A and Investor Relations. Please go ahead.
spk06: Good afternoon, everyone. Thank you for joining the Beauty Health Company's conference call to discuss the company's first quarter 2022 financial results, which we released this afternoon and can be found on our website at beautyhealth.com. Also available on our website is an investor presentation that will be referenced during this call. With me on the call today is Andrew Stanwyck, President and Chief Executive Officer, and Lian Wu, Chief Financial Officer of the Beauty Health Company. Before we get started, I would like to remind you of the company's safe harbor language. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties, that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures, such as adjusted gross margin, adjusted EBITDA, and adjusted EBITDA margin. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. I will now turn the call over to Andrew Stanczyk, President and CEO of the Beauty Health Company.
spk10: Thank you, Eduardo. Good afternoon, everyone, and thank you for joining our first quarter earnings call. I'm excited to walk you through our outstanding performance in the first quarter and update you on the progress we are making on the strategic master plan that I presented last quarter. Before turning to those topics, I want to begin by thanking the Global Beauty Health team and community for their hard work, passion, and commitment. As I enter my fourth month as CEO, I've had the privilege of meeting many of our talented employees and providers throughout the world. You have extended such a warm welcome to me and you all make Beauty Health the incredible company and community it is. With your dedication and support, we saw strong growth in the first quarter and continue to deliver against our strategic initiatives. Having partnered closely with Brent these past few months, we are very proud of the team's achievements and remain as confident as ever about the future as we carry this momentum forward. I'll now turn to slide five to discuss the quarter's highlights. I am pleased to report net sales for the quarter grew nearly 59% year-over-year. Growth was driven by increasing our new door count in the U.S. and overseas during January and February, combined with the deliberate and planned strategic promotions we unveiled in connection with the U.S. launch of Cindeo in mid-March. Cindea is the digitally connected next generation delivery system we co-created with our community. This revolutionary system offers significant improvements and a personal experience for providers and consumers. I am thrilled by the strong early feedback we are receiving from the field, which validates our experience-led approach to innovation and product development. Our Cindea launch plan consists of three phases, which I will detail for you shortly. Our sales team did an amazing job executing on the first phase of the planned rollout, driving strong trade-up volume along continued new system sales. Early adoption trends have far exceeded our expectations, with trade-ups surpassing our forecast nearly threefold. I would liken it within our industry to the same form of hype from consumers that typically surrounds a major new phone launch. Providers were scrambling to buy delivery systems. As a result of the early success of Sundare and the higher than anticipated demand for system trade-ups, I am pleased to raise our full year net sales outlook to a range of 330 to 340 million, up from our previous guidance of 320 to 330 million. I would also like to reaffirm the commitment that we made last quarter to delivering 50 million EBITDA in 2022. Turning to slide six, we are confident in our ability to perform in the current macroeconomic climate as we continue to execute on our master plan. This plan is built on five key strategic growth pillars, which support our mission as a true category creator, reinventing consumers' relationships with their skin, bodies, and self-confidence. I'd like to now spend a few moments on each of those pillars. As we discussed last quarter, Sindeo is key to driving innovation and connected experiences for our community. Sindeo leverages data and personalization, supplying our providers with insights to better understand and meet consumer needs. Sindeo's data transforms the experience of both consumers and providers and will drive increased engagement throughout the beauty health community. As I mentioned, Sindeo is rolling out in three phases. As you know, we intentionally kept Cindea under wraps from our sales force. And to kick off phase one, we delighted our team during our global sales meeting in Orlando with the unveiling of Cindea. Our sales force was ecstatic and immediately engaged their accounts with clear enthusiasm, driving excitement and buzz within the community. To help drive this excitement, we ran an intentional 20-day Cindea trade-up promotion in March to reward our loyal providers and convert them into champions of our new system. The attractive yet profitable offer was targeted to our providers who most recently purchased an elite system. As we have stated previously, our aim is to have our entire install base on the Sendero platform. The promotion was an incredible success in progressing towards that goal and drove far greater demand than we expected. We are delighted to have all of these providers utilizing our latest technology and providing connected superior consumer experience. We kicked off phase two at the start of the second quarter, focused on engaging the entire sales force to accelerate new system placements. We see a huge untapped opportunity to expand our network, both through new locations and second system placements. The reception we've seen in Q1 and into the start of Q2 serves as a strong proof point for the continued market demand for our products and services. Finally, in phase three, we will focus on launching in international markets where we see an incredible opportunity to expand the hydrafacial brand. We expect this phase to kick off towards the end of 2022 or early next year. Next, slide eight will give you a flavor of how we continue to invest in our providers in the quarter. This pillar is critical to our growth because when we invest in our providers, we see double-digit growth in their consumable purchase and second system sales happen 50% faster. As part of our efforts to support our providers, in Q1, we opened our ninth and tenth hydrafacial experience centers in New York and London, respectively. These centers serve as a critical part of our educational platform for estheticians, providing a space to host brand-building events where we showcase our products in a beautiful, interactive setting. At these events, new users typically make up 85% of the total attendees. At the end of March, we showcased a hydrofacial installation at the Aesthetics and Anti-Aging Medicine World Congress in Monaco, one of the world's largest aesthetic events with 12,000 attendees from over 120 countries. At the event, Dr. Paul Nassif, a renowned plastic surgeon and high-sterofacial booster serum partner, met with key opinion leaders, doctors, and providers to discuss the merits of the hydrofacial delivery system. This is just one of the many events we've participated in around the world as we look to expand our provider network. We also continue to undertake initiatives to accelerate brand awareness amongst consumers. To that end, I am thrilled to announce a partnership with the iconic Jennifer Lopez and her J.Lo Beauty brand, bringing a hydrafacial by J.Lo Booster serum to the market. We expect a broad rollout of this booster in the fall, along with consumer activation events to support the launch. With her confident swagger, mass appeal, and dedication to skincare that works, J-Lo is an ideal partner to help us accelerate and broaden our awareness with consumers. We could not be more excited to partner with such an influential icon. We constantly seek to validate the effectiveness of our investments in brand awareness by measuring key data points, and I am very encouraged by the level of consumer interest in Hydrafacial, as measured by Google search trends. As you can see on slide 10, search volume for our brand is at an all-time high. Additionally, our latest Net Promoter Score data measured in Q1 illustrates that we increased to 44 from 40, demonstrating continued consumer affinity. Survey data shows we are increasingly gaining traction with a younger and more diverse consumer base. Interest for our product is robust and growing, and we have a strong conviction that consumers will continue to value treatments that empower them with the confidence to face life, face first. Next, we remain focused on building out our global infrastructure, with a few highlights to support our growth ambitions demonstrated on page 11. We are creating efficiencies within our supply chain and logistics process. This includes setting up a third-party logistics center in Frankfurt for the EMEA region, and such efforts will continue in Q2 as we seek to optimize the business through value engineering projects. We also continue to build our bench this quarter with targeted hiring to support our expansion plans at home and abroad, including key talent in technology, marketing, communications, and the strategic China market. These investments will create operating leverage as we scale, accelerating our path to increased profitability in future periods. And lastly, M&A remains a facet of our overall strategy. We maintain a very prudent and disciplined approach to acquisitions. As discussed last quarter, we will continue to examine opportunities in a highly strategic and targeted manner. In doing so, there are three key criteria we are focused on that will allow us to capture the white space between beauty, aesthetics, and wellness. It needs to be truly differentiated product or service with a high net promoter score. Second, it should be complementary to our platform and community, leveraging that existing core point with the esthetician to drive synergies with existing costs and infrastructure. And third, we are focused on financially accretive opportunities, ideally both the top and bottom lines. In summary, the team is making outstanding progress in fulfilling our master plan. and I am excited to further advance these initiatives throughout the rest of the year. I am incredibly proud of what we accomplished in the first quarter, and I am thrilled with the positive momentum we are seeing across the business. Cindea's U.S. launch has been an overwhelming success. Our investment in our providers are paying dividends. Consumer interest in our product has never been stronger, and we're proud of the bench strength we've built. This momentum will be further fueled by upsides such as the reemergence of cities locked down in China. Once these cities reopen, we are confident we will see a rapid acceleration in our business, similar to what we've seen in other markets reopening around the world. With that, I will now turn the call over to Lian for a more detailed discussion of our first quarter performance.
spk08: Thank you, Andrew. And thank you, everyone, for joining us. Today, I'll walk you through our first quarter results touch on our balance sheet, and discuss our full year guidance. Before jumping into the results, I want to take a few minutes to revisit our business model on page 15. You'll recall the razor razor blade model I explained last quarter. We view the delivery system as our razor and associate consumables as our razor blades. Looking at the revenue model, we first sell our hydrofacial delivery system to providers As providers perform hydrofacial treatments, including various booster serum options, they exhaust and reorder their supply of consumables, driving growth in our consumables revenue segment. A provider will typically purchase a delivery system for one of three reasons. It is either their first purchase of a hydrofacial system, or they are adding a system to increase the volume of hydrofacial treatments they can perform in their practice. or they are looking to trade up a previous generation delivery system to the current model. Trade-ups historically represent a low single digit percentage of delivery system sales for the year. However, the successful Sandeo launch is already driving higher than expected demand for trade-ups as providers look to upgrade their delivery systems to this revolutionary new model. I will touch more on trade-off dynamics in a few moments. I will now turn to our Q1 performance summary on page 16. We're very proud of what we have accomplished in the first quarter, despite lockdowns in China, the deeply troubling crisis in Ukraine, persistent inflation, and global supply chain disruption. Looking at the top left of the slide, you can see we delivered first quarter net sales of 75.4 million, up by nearly 59% year-over-year. This was driven by strong global demand for both delivery systems and consumables despite the headwinds in APAC, as well as the successful launch of our Sundale delivery system in the quarter. We drove delivery system sales growth of approximately 62%, with record system sales supported by Sundale Trade-Ups. As Sundale was launched in the final weeks of the quarter, we are seeing the strength continue in Q2 as we take on new orders, in addition to shipping out Trade-Up deals orders from the end of March. We also saw strong sales growth with consumables, which increased 54% year over year. Importantly, we saw continued sequential monthly improvements in utilization trends throughout the quarter, particularly in the medical channel. Globally, we saw year-over-year growth in net sales across all regions. In the Americas region, first quarter sales increased approximately 43% year-over-year to 44.6 million due to Sundale and strong sales productivity driven by conversion of marketing-driven leads. In APAC, Net sales increased nearly 47% year over year to 12.9 million. This was driven by continual strength in Australia, partly offset by strict lockdowns in certain parts of China. Despite the softness in China, we're still confident in our full-year guidance, which we are raising today. I would like to take a moment to acknowledge our team in China, particularly those based in Shanghai. They have been so resilient. And I'm proud of the way our team has come together to support our Shanghai colleagues by arranging for the delivery of fresh fruits and vegetables to their homes while our colleagues could not leave their front doors. Our thoughts remain with all those impacted by the lockdown measures. Looking at EMEA, net sales increased approximately 140% year over year to 17.9 million, with broad-based strengths across the region. As Andrew discussed, our marketing activation and trade shows in the region also fueled growth against the COVID-impacted comp of Q1 of last year. As was mentioned in the past, year-end promotions drive higher sales in the fourth quarter of any given year, consistent with trends you see across the beauty, aesthetics, and wellness industries. I'd also like to remind you of our historical seasonality which typically starts with lower Q1 versus Q4 of the prior year and sequentially builds throughout the year. Importantly, the strategic investments we make early in the year boost our productivity and support the stronger sales and margins seen in the second half. We anticipate these seasonality trends to continue this year. Our strong first quarter performance was supported by planned investments. including marketing activations and hiring efforts to support our international expansion. You can see in the chart on the right, we saw adjusted EBITDA of 2.2 million for the quarter, which was impacted by the cost associated with launching Sundale. We expect to see our adjusted EBITDA ramp up as we progress through the year. Moving to the chart in the center of the slide, we reported a gap growth margin of 68.9% and a 50 basis point year-over-year improvement in our adjusted growth margin to 72.7%. The lift was driven by our fixed cost leverage and continued margin pickup in the regions where we acquired our distributors. This was partially offset by higher supply chain and logistics costs as well as trade-off units sold during the quarter with their lower AST. We expect global supply chain and inflationary headwinds to continue throughout 2022, which we will offset through pricing initiatives and the realization of margin accretion from our continued value engineering efforts in the second half of the year. Finally, turning to the bottom of the slide, I'd like to update you on our key performance indicators. First, we sold a record 1,849 delivery systems in the quarter, including 258 trade-ups. This resulted in an install base of 21,719 at the end of Q1. It is important to note that trade-up activity has a net zero impact on our install base. as an existing system is removed from our install base when the new trade-off system is sold. Lastly, the average selling price of a delivery system, or ASP, was $21,462 in the quarter. Our ASP was impacted by the trade-off activity from existing provider demand for the Sundale during the first phase of our launch. Before we move on, I would like to take a moment to discuss this dynamic. we strategically released promotions in connection with the launch of Sundale to reward our loyal customers. The trade-up pricing was only enticingly discounted for systems less than one year old. All of our promotional trade-up offers result in profitable unit economics. We're not selling trade-up systems below our cost, and our most aggressive offer expired at the end of March. We have an increasingly strong and loyal following in our provider community, and the reception to our trade-up promotions exceeded our expectations. This is a testament to the desirability of our revolutionary new delivery system. As a result, we expect an additional impact to our ASP and growth margin in Q2, as we'll process the initial wave of over 1,000 trade-up orders. All that said, We view the ASP and gross margin impact from trade-offs as transitory, as these sales will decrease as we progress throughout the year, with the bulk of the impact occurring in Q2. Further, our sales team is bifurcated, with a capital sales force closing on new system sales and handing over account management to our business development managers. It is these business development managers that focus on trade-off demand, with our capital sales force focus on selling new delivery systems. As a result, we do not expect deterioration in new system sales volume due to the trade-up activity. And I will remind you that a new system sales in Dell carries a higher ASP and neutral growth margin than our previous delivery system. This drives our conviction in being able to achieve a high single-digit blended ASP increase in 2022, despite the trade-up impact. I will now dive into our first quarter cost details on slide 17. As we said last quarter, we expect headwinds from global supply chain disruption in inflationary pressures, particularly in freight, to continue to impact our margins in 2022. Selling and marketing expenses in the first quarter were $36.4 million compared to $17.1 million for the first quarter last year. Breaking this down, Selling and marketing increased to 48.3% of sales, up over 1,230 basis points compared to the COVID-impacted first quarter of 2021, or up 70 basis points compared to the fourth quarter of 2021. This increase was driven by the cost of our global sales meeting, where we delightfully mentioned to our sales force with the launch of Sundale. Higher planned marketing spend to support the launch, and higher personnel-related expenses as we expand our talent globally to fuel future growth. As Andrew mentioned earlier, we constantly evaluate our marketing initiatives in order to maximize the ROI of our spend. We have also continued to invest in our training programs, such as those hosted at our Experience Centers and our Hydrofacial Connect program. Our GNA expense of $26.3 million includes $3.9 million of non-cash stock-based compensation expenses, $2.4 million of one-time transaction and executive transition costs, and $1.5 million in litigation costs as we pursue ongoing patent and trademark infringement cases. Investments in hiring, infrastructure build-out, and public company costs drove the increase in GNA expenses, compared to $10.8 million in the first quarter of 2021 or $25 million in the fourth quarter of 2021. Public company costs total $2 million this quarter, which include B&O insurance, SOX compliance, and additional audit and PACS-related services, as well as higher personnel-related expenses due to increased headcount. We expect such public company costs to continue in the near term. During the quarter, we continued our investment in building out international infrastructure. As previously shared, we successfully rolled out the first phase of a global ERP platform on November 1st, which includes CRM and new B2B and B2C platforms. The global ERP platform increases our agility and improves productivity by leveraging technology. We continue to make progress with the expansion of that platform. And we expect integration efforts globally over the next few quarters will yield operating efficiencies within the business going forward. Touching on R&D, we invested $2.2 million in the first quarter compared to $1.5 million in the prior year and $1.9 million in Q4. This was driven by Sundale as we ramp up technology spend to build our digitally connected platform, which is a major milestone for the business. Over time, we expect these technology investments to pay dividends for our digitally connected ecosystem and inform future product development. As Andrew outlined earlier, experience-led innovation remains a key tenet of our master plan, as it enables us to create differentiated products that drive rapid expansion and share in the beauty health market. I'll now move to our balance sheet highlights on page 18. We ended the quarter with $859.2 million in cash and cash equivalents. With this balance, we remain well positioned to execute on our hyper-growth initiatives while keeping strategic M&A opportunities actionable. We continue to carry approximately $750 million in convertible notes on the balance sheet, which you'll recall we raised in the third quarter of 2021. to increase our flexibility for strategic acquisition among other uses. We have also invested in inventory components as we bought ahead of the Sandeel launch to ensure adequate supply and to blunt the impact of global supply chain disruptions. Finally, our current shares outstanding are approximately 151 million. Turning now to our full year outlook on slide 19. As Andrew detailed, we are raising our guidance for net sales to a range of $330 to $340 million, up from our previous guide for $320 to $330 million, driven by the early success of Sundale and continued strong demand for systems around the world. As we have stated previously, we reserve the right to continue to reinvest profits back into the business should conditions warrant such investments. We thus confirm our previously stated adjusted EBITDA guidance of $50 million for 2022. You'll recall that 2022 will be our final year of elevated investment as we complete our infrastructure build-out. Starting next year, we will shift our focus to leveraging the investments to drive EBITDA margins back towards historical levels. In conclusion, we're confident in our ability to continue to execute by carrying out our operational initiatives and executing against our master plan. We expect to see the typical sequential pickup in demand during the second quarter of the year, further bolstered by the very successful Stendale launch. Note that our full year guidance considers continued macro disruption, including lockdowns in China. As Andrew mentioned, We're very optimistic about the potential upside to our guidance should macro conditions improve throughout the year. We're extremely pleased with our performance for the fourth quarter of 2022 and remain as excited as ever about the opportunity in front of us and the continued momentum across the business. We will now gladly take your questions.
spk15: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And we do ask that you please observe a one-question limit. Our first question comes from . with Jeffrey.
spk13: Please go ahead. Thank you. Good day, everyone. Andrew, I wanted to ask you a question about your marketing strategy. So you've given us a sneak peek into your super users and their updates on Zendaya, but also the JLO partnership. If you could just talk a little bit about the range of marketing techniques you're thinking about using or already implementing. And then are there any other strategies that you're developing that might be complementary to both the super users and kind of a celebrity partnership?
spk10: Hi Stefan, thank you for joining the call. I think as we spoke last quarter, I think one of my first observations when I joined the beauty health company is that the marketing was very much focused on the on-ground activations in terms of the Glovolution tool, which was very successful with a very high ROI. They had limited reach, so I think what we've developed over the last three months together is a more balanced approach to marketing, where we still invest part of our budget in the on-ground tours around the world, complemented by the experience centers which we've been opening up around the world. And I think you visited our New York one a few months ago. And another part of that is what I recall mentioning last time, is the need to build the digital marketing. And of course, that's something which we've been investing in across social, paid social, and to complement that, I do feel there is a role in addition to the influencers we've been working with, with celebrity. And that's why I'm really proud and excited to announce that the partnership with JLo, I think she's an icon and I think she'll be a great help in amplifying our brand awareness.
spk13: That's great. Leanne, if I could just throw in one more question, that's a technical one, but we're getting this question. Could you walk through the timing of revenue recognition on the trade-ups? It sounds like you had some, essentially trade-up requests that you hadn't filled at the end of the quarter. So just walk us through how the trade-up revenue recognition works and then how the costs flow through as well from a P&L timing perspective. Thank you.
spk08: Absolutely. Hi, Beth. Great question. So, you know, as you know, we launched NAIL towards the second half of the month of March. And as you also know, you know, we previously have shared know for a new machine from demo to close about 14 days and now we surprised and delighted ourselves people now we have to allow us with timing to you know send the demo unit to them as they sell new units so all of which as you heard us speaking you know we we had you know over a thousand um trade-off units that essentially we were shipping after um you know part of that after the month end So from an accounting treatment point of view, once we take the trade-out back and then we ship the new unit there, upon the point we ship all this new unit, that's when we recognize the revenue, you know, based on the price and based on the value associated with the trade-out unit. And then, you know, when we – so that's really how the accounting treatment works. And usually we take the cash up front as they put in the order as well.
spk14: Okay, that's very helpful. Thank you. The next question is from Oliver Chen with Cowen.
spk15: Please go ahead.
spk04: Hi. The progress on Sandeo is very encouraging. How do you expect the trade-up mix to evolve in the next few quarters? And also, on the gross margin line, you mentioned pricing initiatives. Just would love your take on what we should incorporate in our models and your thoughts there. a follow-up on international, what's included in your guidance, you know, in terms of the international new markets? Thank you.
spk10: Thank you for joining the call. I'll start and then pass on to Leanne. To address the first part of your question, so as I stated earlier, we intentionally and planned the launch in mid-March to encourage as many of our providers get on the Syndeo system, especially those, and we've talked before about who've recently purchased the elite system. But of course, our ultimate goal is to get everyone on Syndeo because it's data and consumer knowledge will ultimately drive further growth. We had the promotion which we planned, which finished at the end of March. That drove very short-term demand, and which will also go into Q2. And then that promotion stops over the rest of the year Certainly, if we talk about the U.S. market where we've launched today, you'll see a more gradual rollout of the Zendaya system. So I'll pause there and hand over to Lianne, who can comment on the margin, and we can return to your international question later.
spk08: Thanks, Andrew. Hi, Oliver. Yes, to add on what Andrew has built on already, essentially, when you look at the trend, as we said, the team is bifurcated. You know kind of the hunter side of the team that yet bands are focusing on new machines and based on the trim we're observing it's exactly as we anticipated. you're starting to see the slow down right, because the best deal for the newly purchased is essentially done by the end of March. And we started to see more gradual slow down on the tree that side and see the build on the new system side. So from a margins point of view, as we alluded to at the prepared remarks, Oliver, essentially we anticipate ASP and growth margin impact in the second quarter because that's really when you capture the big trade-up volume. And then we anticipate to see that margin start to come back up in the second half. And that actually goes hand in hand with all of these network kind of optimization work we've been doing and we haven't even started when it comes to value engineering, seeing this as a brand new machine. And we actually bought quite a bit upfront for the component. So as you can appreciate the effort that we're putting in, we anticipate to start to really see that fruition toward the end of 2022.
spk10: And in terms of the international markets, I think what we've seen, Oliver, with the exception of specifically Shanghai, where we've had the lockdown, we've seen a very encouraging uplift. EMEA had a very, very strong quarter. Demand remains very strong. Likewise, when we saw markets which have been locked down, like in Australia, we've seen the business really accelerate. Indeed, even in China, outside of Shanghai in Q1, we've seen really encouraging sales of both systems and consumables, which gives us a lot of encouragement when the markets do, and particularly Shanghai and other cities open up, that will be upside for the rest of the year. For the moment, though, as Leanne spoke to, we have built in the lockdown in our guidance, which we've given and confirmed for the rest of the year.
spk08: The only thing to add there, Oliver, you guys can see the trend, right? When the lockdown wasn't such a big deal, the APAC business was growing 200%, 300%. The fact that we actually grow at 40% is a true testament to the team, but at the same time give you a clear indication of, you know, that growth is slowing down precisely because of the lockdown.
spk14: Very helpful. Thank you. Best regards. Thank you.
spk15: The next question is from Alan Gong with JP Morgan. Please go ahead.
spk09: Hey guys, congratulations on the good quarter. You know, I guess I just had, you know, a quick follow-up to some of the questions that were already asked. You know, you obviously had a very strong start to the year and you felt confident enough, despite the fact that, you know, it seems like there is still some uncertainty out there with BA2, you know, with Omicron, hopefully tailing off, but still driving some impacts that you were able to guide above the beat you saw in the quarter. So when we really think about beyond just the stronger Cindeo launch, you know, when we look at the stronger consumables, what's really driving that and what gave you confidence to come out with such a strong guidance rate this early in the year?
spk10: Thanks, Alan. I think the important caveat to your question is actually we didn't launch Cindeo until mid-March. We actually had a tremendous start to January and February by existing system cells, you know, new doors, and consumer balls globally before we even launched in the U.S. And I think it's just, you know, it's just a testament to the strong demand for hydrofacial and the fact that consumers are still choosing to invest in their healthcare and skincare and ultimately confidence. And I think as our brand awareness increases, and you heard me earlier speak to we've got record levels of search on Google Trends. You've seen the increasing NPS score of 44 versus our previous measure of 40, extremely high, which shows the growing affinity to this brand. And that's why so much of what I'm doing and we're doing as a team is to really increase the brand awareness, because we felt that we're really set on the best kept secret in beauty. So, you know, with Jayla, we'll unlock more brand awareness to get more people to try this brand. Because when you have to really get it to get it and we trial, we lock them in and they keep on coming back. And that really talks to the success we've experienced in Q1.
spk08: Yeah, and Alan, the only thing I'll add to that is actually two things. One, as we talked about, we're very happy in terms of that sequential improvement we see on the consumable side for the market. The only one that you see downtrend, APAC, especially with China, make a lot of sense. The other thing that's really exciting to us is the power of marketing. As we observe increasing marketing in EMEA, we see significant growth for EMEA, especially on the consumable side. That's a clear indication of if we are increasing brand awareness, we're engaging, we can see that return. And then the last thing I'll remind you, as I mentioned earlier, when we sell a new machine, it usually comes with two to three months worth of consumables. So with all of these trade-offs that are coming up that, you know, we saw in Q1 and Q2, that would actually impact consumables because of the fact that we rolled out more systems. So we're going to continue to monitor this very closely and kind of share with you guys the trend way out there.
spk09: Thanks. And then a really quick follow-up. It sounds like there's a little bit of flex on when the international launches in DAO might really start. So when we think about the guidance range that you have today, and the fact that, you know, we saw that in only one partial quarter, you were able to generate so much interest and, you know, trade of volumes of Sandeo, what are you assuming for that in your guidance? Are you leaving that all as upside given that you might, you know, see some of those launches slip into 2023, or is there some contribution in there? Thank you very much.
spk08: Hi, Evan. On that point, you know, I think Andrew's prepared remark had mentioned We wanted to be very thoughtful. We wanted to launch internationally, globally, making sure the data, the connection. So from our guidance point of view, we took that into consideration. So it depends on, you know, the launching period and depends on the conditions that we're going to be experiencing. You know, there could be potential upside if we actually pull this forward.
spk14: The next question is from Margaret KSR with William Blair.
spk15: Please go ahead.
spk03: Hey, good afternoon, everyone, and thanks for taking the question. I'm going to leave it to one, but a multifaceted one, perhaps. And it's a little bit more detail around the Jennifer Lopez partnership. So, you know, first, what made her and her, you know, JLo Beauty brand the right partner for you guys? And then as you look at what her role or JLo Beauty's role is going to be over the course of the year in relation to awareness and engagement. You know, what are they going to do? How are they going to partner to push and drive that engagement? Because you do a quick follower search, and it looks like JLo herself has got 200 million followers. So, obviously, a lot of potential interaction there, depending on, you know, how you guys set up that partnership.
spk10: Thanks, Margaret. In fact, with your question, you gave me part of the answer. I mean, obviously, where I'm so excited to partner with somebody as iconic as J-Lo with her booster serum. The fact that she's one of the most, you know, followed people on the planet with 200 million plus followers on Instagram alone. We felt, and also with a skincare line built on the premise of glow with hydrofacial, that's, you know, something which our product really delivers when you, you know, when you know you glow. And we feel that's a really strong and very logical partnership to help us really drive our brand awareness. We're very excited to launch it in the fall. There's a significant amount of consumer activation, which we're building with Jennifer and her team behind that launch in the fall. So you'll see that play out across the marketing during that period.
spk03: Okay. And just to be clear, that ends up meaning that J-Lo herself will actually be actively involved in this as you guys kind of continue this partnership.
spk10: Thanks again. Yeah, I won't go into the details, but yes, of course, it'll be support around launching this exclusive booster serum with hydrafacial from J-Lo.
spk14: The next question is from Amit Hazan with Goldman Sachs. Please go ahead.
spk12: Hi, this is Phil. I'm for a mute. Thanks for taking the question. On the supply chain front, we had an adjacent aesthetics equipment provider earlier today commenting on a challenging supply chain environment for acquiring input componentry. Just wondering if you can comment. I saw, obviously, from a gross margin standpoint, pressure from an inflationary kind of cost standpoint. Are you seeing any disruption in terms of being able to satisfy what's incredibly strong demand thus far for the equipment side of the equation? Thank you.
spk10: Thanks for the question. I'll kick it off and hand it over to Leanne. I mean, first of all, as I spoke to last course, I think Leanne and the team here did a fantastic job in buying forward components for the launch of Cinder. We bought significantly. So we've been able to satisfy quite adequately the demand in componentry. were overwhelmed during the last part of the course with the extreme demand. And we've been working through in the last week or so to just completely and get them out the door on time. But that is not related to components. It was just more catching up the demand. And we'll be back by next week fully up to date on those orders and deliveries. Leanne.
spk08: Yeah, thank you. Thank you. Yeah. So to reiterate the point there, that's why we bought forward on the components and we also really extended our product production line. You know, we were anticipating high demand when it comes to treat us. And we're always very proud, right? It's the same order coming in the same day by 2.30, we ship it out. This is probably the first time, you know, the fact that we actually have quote unquote back orders from March that the team's been working hard to fulfill. So you know, very happy by the fact that, you know, we were able to satisfy that initial big chunk of demand. And, you know, we're just kind of crunching that out as we speak. From a margins point of view, you know, we wanted to be very clear in terms of, you know, the ASP and growth margin impact, because a lot of these trade-off volumes that flow through Q2 will emphasize that. But again, you know, the team's working really hard on, you know, value engineering to combat the, you know, the shipping cost increase.
spk12: And so, in summary, very good job of pre-buying ahead of the significant demand and still feel good about the position that you're in to be able to satisfy demand moving forward.
spk14: Absolutely.
spk10: Thank you. And just to add, we haven't even started to value engineer this product yet. So, that's all work to be done and future upside ultimately.
spk12: Thank you both for the comments.
spk15: The next question is from Kyle Rose with Canaccord Genuity. Please go ahead.
spk05: Great. Good afternoon and thank you for taking the questions. This is Gibran on for Kyle. To start, I appreciate all the detail around trade-ups here on the call. With the promotional dynamics understood in the early stages here, I was hoping maybe we could dig in a bit into the types of accounts doing those trade-ups. Maybe how long have they had the legacy system? Are they power users with multiple systems or single system users? Maybe just any color there on the customer profile participating in trade-ins outside of the aforementioned promotional targets.
spk10: Thank you, and that's a great question. Indeed, it's all of the above. We've had, I mean, typically our systems, they can last from anything from five to ten years. I would say the average, though, is circa five years old. And we've had small independents and value customers trading up. I think what really struck us, though, was the change. where we expected them to buy one or two new Cindeos. But I think this really interesting effect when they decide they want to do the entire fleet all at the same time so they have an identical fleet. And I think that's what drove enormous upside during March as they took advantage of that trade-off, which was really fantastic to see because we're very keen to get everyone on Cindeo as fast as possible so we can really unlock the power of that data and really having that direct access to the consumer.
spk05: Understood. That's helpful, Andrew. Thank you. And then maybe just an update on Glow and Go and how that limited soft launch has been tracking. Is that still actively underway? And maybe what are you looking to understand or what data are you looking to gather coming out of that launch? When can we maybe expect something a little bit more formalized around that?
spk10: Yeah, great question, too. So we remain confident there is a market for some form of take-home device, but we will take the time for our new technology team, and I've just brought in some new people during this quarter, to ensure what we're launching in terms of innovation is new, better, and different. So Globigo is still in the testing phase. We started this process in the fourth quarter of last year, as you know, and we haven't included any of that product in any of our guidance or et cetera for this year. And I'll give you a more detailed update during the second quarter. Frankly, we've all been so focused on ensuring the flawless launch of Cindeo in Q1 that I want another quarter to review Glow and Go.
spk05: Sure. Fair enough. Thank you again for taking the question. Thank you.
spk15: And the next question comes from John Block with Stifel. Please go ahead.
spk11: Thanks, guys. Good afternoon. And sort of juggling a couple things. Hopefully these weren't asked earlier. Maybe the first one, just at a high level, the extra 10 million To 2022 REVs and EBITDA and change, maybe just talk to us, you know, where's the investment going? Is it driving awareness? Does the leverage show up next year? Is it just heightened supply chain and inflation costs, which I think you've alluded to? Maybe just walk us through where those dollars are going. And if it sounds like you're still committed to call it the accelerating margin expansion of the 23, but maybe you could just comment there.
spk10: Thank you. Great question. So I think, you know, first of all, in terms of the enhanced guidance, we've just been so encouraged by the robust and continued demand we've been seeing for the consumer and their willingness to continue to turn to hydrafacial. And, you know, as I said earlier, we're winning new doors, opening new doors and driving consumers even before we launched in there. I think what gave us the confidence to raise the guidance was just the exceptional response from the market from Zendaya. And just still anecdotal feedback continuing from providers that demand remains very strong as consumers really continue to prioritize self-care. In terms of the marketing dollars, the majority of it is, as we talked last quarter, we want to take that upside for now and reinvest it in driving our brand awareness to keep that virtuous file of growth turning, to keep on driving that revenue and ultimately our profits. That's why we've reaffirmed our commitment to 50 million EBITDA. So we have reserved the right to invest only over delivery and so really fueling that growth of the brand.
spk08: So John, the only thing I'll add to that is from an investment allocations point of view, as we shared with you before, that golden triangle between sales and training and marketing, we're constantly trying to optimize, right? Essentially, for some of the newer market, it's a matter of just hiring salespeople and training folks and marketing folks. So that's really number one, just make sure we have the people. And then in addition to that, to Andrew's point, there's a lot of tech to learn in this business, and we're going to be very, very disciplined. And obviously, we're pretty maniacal when it comes to managing both the top line and bottom line. It's top of mind for us.
spk11: Got it. Very helpful. And maybe just as a follow-up, you know, to go down the road of Sundeo, Where are you guys with the process of reps reaching their accounts? I mean, we did checks and the uptake was through the roof, but actually, surprisingly, we didn't have every account reached by their rep, you know, laying out the Sindeo economics, if you would. And so is it, you know, a complete full throttle go ahead? Are you pulling back a little bit to make sure that you can get these systems out the door in a decent time period? And maybe the last tack on question is, Talk to us about a Sandeo adopter, and does it help sort of reengage them for consumables utilization? I know, Leanne, you talked earlier about maybe some free consumables going out with the new machine, but does it help revitalize the practice, the LED setup, you know, get up and forget it, that type of thing? Does it help driving or reengage these practices from a consumable standpoint? Thank you.
spk10: Yeah, and I've spent a lot of time in the field with providers and estheticians during the last few weeks since the launch. And absolutely, it's really re-engaging. New machines is really, you know, also with the machines, the new training, it's really driving the consumer balls and the whole interest back into hydrofacial. So it's a really exciting moment for us. And again, giving us confidence as we look forward to the rest of the year.
spk08: Yeah, John, just to reiterate, I would say to both. One, utilization is absolutely a key area of focus. And to your point, we're actually doing a lot of training elements to, you know, really speaking with our VNs, you know, with the customer. But obviously, they were just launching. And the fact that we had a lot of treat-ups, you know, happening, suffice to say, there's a lot of effort on our end. The field is going to continue to really feel that and educating along the way with our customers.
spk14: As a reminder, please limit to one question.
spk15: The next question is from Olivia Tong with Raymond James. Please go ahead.
spk02: Great. Thank you. I'll try and stick to one question. So just on EBITDA, you guys maintained the guide on EBITDA despite better sales. So could you just talk a little bit about the key drivers of that? Was it more a desire to do some more promotion? Obviously, we're all grappling with higher external costs. So is that a factor there? And just would love a little bit more detail about your view on promotional levels and selling and marketing as we progress through the year.
spk10: Thanks, Olivia. Well, first of all, the vast majority will be reinvested into training and marketing and education. That's where the most of it's going. Really, we see just with the robust trends we've seen in Q1 and into Q2, we want to keep that virtuous spiral going and just seeing as, you know, with the deployment in the Glovolution tour, With the paid social, with the upcoming JLO event, we're very keen to ensure we have the right investment to really maximize those opportunities and keep that virtuous spiral of growth turning. So that's predominantly where the investment is.
spk08: Yeah, and Olivia, I just want to emphasize that's been planned all along because we are a hybrid growth company. So we've always wanted to make sure there's ample dollars to fuel the growth. And there's no, you know, in the sense that, you know, we just want to reiterate the point, we're always going to be very thoughtful. But if that's going to drive further top line and, you know, speeding up our process to go forward, we will always allocate a dollar back to marketing and training in other areas to fuel future growth.
spk02: Got it. And just one quick follow-up with respect to the JLO partnership. Is she allowed to partner with others or is there any kind of exclusivity for you guys? And then obviously there's no shortage of celebrities with skincare lines right now. So could you potentially, is this an angle that you're thinking has some legs? Could you potentially partner with others, either celebrities, social media influencers, et cetera? Just kind of curious on your view on ability to leverage that platform further.
spk10: Sure. And first of all, if we look at the pyramid of influence and how we drive the brand awareness, you know, I see a role for, and I think we spoke about this before, for the role of physicians, influencers, beauty influencers, wellness, but also celebrity. But, you know, someone as iconic as JLo who has a proven skincare brand built around the premise of Glow with a following of over 200 million consumers just on Instagram. was the absolute ideal partner for us. That's why we're so excited to partner with us. And of course, the partnership, she has her own skin brand already. Of course, the partnership with J-Lo, Booster Serum, and Hydrafacial is exclusive. And we really look forward to activating that in the fall.
spk08: Yeah, but Olivia, I just want to make sure, you know, we're an end company. So essentially, we don't do like pure exclusivity in the sense that I truly allow us to partner with multiple. players to the pyramid that Andrew's talking about.
spk14: Great. Thank you. Best of luck. Thank you.
spk15: The next question is from Bruce Jackson with the Benchmark Company. Please go ahead.
spk07: Hi. Thank you for taking my question. With regard to the revenue guidance and the quarterly pacing, usually you get a pretty big step up in Q2. Can you just help us and how to model the revenue trajectory for the rest of the year.
spk08: Hi, Bruce. Yeah, so, you know, as we mentioned, we're kind of a sequentially growth business, right? Like, you always have a low Q1 and then start to build quarter after quarter. The fact that we have these, you know, backlog for the, you know, the trade-off that's going to come through for Q2 sort of give you a slight boost for the quarter, if that's helpful.
spk14: That's helpful. Thank you very much. The next question is from Corinne Wolfmeyer.
spk00: Please go ahead. Hi. Good afternoon. Thanks for taking the question. So I'll just ask one quick one here since we're getting up on time. But is there any point where you'll stop supporting maybe older hydrafacial systems in order to kind of expand your raw of Cindeo and get everyone converted over to Cindeo? I know you're not selling the older systems here in the U.S. anymore, but, like, at what point will you stop making maybe consumables that fit that older system or providing maintenance for those older systems?
spk10: Thanks, Corinne. I mean, just to reiterate, as you know, our intention is to get everyone on Cindeo starting in the U.S. and ultimately globally. Clearly, those valued customers who have the Alder Elite system, which we have warrantries, will continue to honor those warrantries, of course, and keep on manufacturing those when needed in our Burnett facility, which you visited. But of course, the ultimate goal is to get everyone on Cindeo to get that data and unlock that direct relationship with the consumer.
spk14: The next question is from Linda Bolton-Weiser with DA Davidson.
spk15: Please go ahead.
spk01: Hi. I was just curious. I know that the marketing expenditure was pretty high to launch the new system in the first quarter, but I'm just kind of wondering, on a long-term basis, what is a normal selling and marketing ratio for this type of business? probably it's higher than 43% because it was a little bit lower in 2021 as the world was ramping back up. But is it somewhere between 43% and 48%? Or, like, can you just give us some sense of what this business looks like kind of on a normalized run rate business or basis? Thanks.
spk10: Thank you, Linda. And as you rightly noted, we, of course, leaned in this quarter for the, obviously, the exceptional launch of COVID. which of course will pay dividends, which will leverage later in the year, but we lean forward in the investment there. I would give a guide of somewhere in the 30 to 40% range based on my experience is probably a good benchmark of what we'd be aiming to keep that virtuous file of growth, of investment in marketing, growing the brand and profitability. That's what we have in mind.
spk08: Yeah, Linda, the only thing I'll emphasize is the power of leverage. Obviously, you know, we're still in the pandemic time for the APEC market, so you might not see that range come, you know, quickly this year. This is, you know, what Andrew had mentioned, it's really, to your point, longer term as we grow. That should be kind of a range we're thinking about.
spk14: Okay, thanks very much. Thank you.
spk15: This concludes our question and answer session. I would like to turn the conference back over to Andrew Sandlich for any closing remarks.
spk10: Thank you, operator. I mean, to summarize, we're extremely pleased with our first quarter results and the trends we're seeing across the business. We're excited to build on this momentum throughout the rest of the year as we continue to deliver that confidence-boosting glow. That's the best-kept secret in beauty. But thank you all again for joining us today. I look forward to connecting again with you soon.
spk15: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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