SkinHealth Systems Inc.

Good morning and welcome to the Beauty Health Corp 2022 earnings call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the call over to Mr. Eduardo Rodriguez, Senior Director of M&A and Investor Relations. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. Thank you for joining the Beauty Health Company's conference call to discuss the company's second quarter 2022 financial results, which were released this morning 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 are Beauty Health President and Chief Executive Officer Andrew Stanlick and Chief Financial Officer Leanne Wu. Before we get started, I would like to remind you of the company's Safe Harbor link. 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 and adjusted EBITDA. 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 Stanlick, President and Chief Executive Officer of the Beauty Health Company.

Thank you, Eduardo. Good morning, everyone, and thank you for joining our second quarter earnings call. I'm excited to walk you through our spectacular second quarter performance, as well as the strong progress we have made on our strategic master plan. Before we begin, I want to welcome Marla Beck, who joined our board of directors in June. As the founder of Blue Mercury, Marla brings invaluable beauty industry, D2C, and retail experience to our board, and her positive impact is already felt. I also wish to extend a special thank you to the beauty health teams around the world. Since becoming the CEO six months ago, I have had the privilege of working with and meeting hundreds of you on my travels. I am constantly inspired by your passion, creativity, and commitment, and our excellent results are a testament to your amazing work. With that, I am pleased to announce that we achieved a record-breaking quarter, reaching sales above $100 million in a single quarter for the first time ever. You will see in our results that beauty health is firing on all cylinders with outstanding momentum across the business and a growing enthusiasm from our community for our efficacious patent-protected hydrofacial technology, which is fueling our growth. All of these extraordinary achievements come while we are still in the very early stages of disrupting this dynamic beauty health category. With our compelling competitive advantages, we believe we are just getting started on our growth journey. Turning to slide five, we posted record high net sales of $103.5 million, representing nearly 56% growth year on year. We also delivered a strong adjusted EBITDA of $12.6 million, up nearly 11% year over year. It is our sixth consecutive quarter exceeding top line expectations. Our sales growth is both impressive and accelerating, driven by record hydrafacial system sales. We accelerated momentum in Q2 with total hydrafacial delivery system sales growth of 85.4% year over year, setting another record of 2,738 total delivery systems sold. As part of this, the Cindea rollout in the U.S. has been a tremendous success, with 2,265 Cindeas placed since launch in March. We are also seeing that consumer interest in hydrofacial has never been higher, and I will come on to the growing momentum we are seeing here shortly. We are breaking records across our business, and the outlook has never been better. Based upon our performance and ongoing momentum, I am pleased to raise our 2022 net sales guidance to a range of $340 to $350 million. And I reaffirm our $50 million adjusted EBITDA outlook, a growth of 53% versus 2021. The enthusiasm we see from our highly engaged community of providers validates raising our net sales guidance and our approach of investing to capture and fuel consumer demand is paying dividends. The expected operating leverage generated from our investment should drive profitable growth for the years to come as we work towards better profitability by the end of 2022 and continue the momentum towards historical levels in 2023. And I look forward to providing more detail on our long-term growth ambitions at our investor day on the 15th of September. I will now turn to slide six to discuss the drivers of our performance in the quarter. In the Americas, we achieved growth of 76.6% fueled by the launch of Cindea. Having visited with hundreds of providers and consumers across the U.S., there is an incredible enthusiasm for our new, Cindeo delivery system, and we see it in our results. Our performance in EMEA is similarly exceptional. We registered growth of 56%. This was achieved by strong system sales and increased marketing activity across the region. We have been actively investing in the brand and participating in high visibility trade shows and events. The energy we are creating behind the brand is palpable. In line with our omnichannel approach to reach consumers where they live, work, and play, we are also rapidly expanding into new channels, including retail. We have just announced a permanent hydrafacial presence at the iconic Galeries Lafayette flagship on Boulevard Haussmann in Paris in partnership with Innerskin, who will be the exclusive aesthetic clinic provider in their state-of-the-art wellness gallery set to open in September. It is expected to be the largest space devoted to wellness in Europe. This complements the existing partnerships we have in other markets with Sephora, Ulta, Nordstrom, and John Lewis. Turning to APAC, the region is dynamic, and unsurprisingly, persistent COVID lockdowns in China impacted our results. APAC next sales declined 16.5%. partially offset by continued strength outside of China, especially in Australia. Leanne and I recently had the privilege to visit our teams and providers across the APAC region, and the trip reinforced our belief in the large and untapped reservoir of growth that exists in APAC over the long term. Looking ahead, the success we're seeing across the business and our growing momentum reinforce our confidence in the future. Hydrafacial is an unrivaled breakthrough technology. It creates efficacious results, and it delivers a confidence-boosting experience that consumers love. We are at the nexus of a thriving market for beauty and health. Pair this with a resilient, upper-middle-class consumer with a high affinity for beauty, and we have a powerful firewall that gives us the conviction to continue reinvesting in growth for the future. Turning to slide seven, we continue to make strong progress against our five-point master plan, and I will share an update on each point. First, we remain focused on placing new systems. The first phase of our Cyndeo roller in the U.S. was an astounding success. Cyndeo is a giant leap forward in skin health technology. Our customers are raving about the connected system and user experience. And on slide eight, you can see some of the feedback we have received. This is the first of its kind digital experience in beauty health. And the buzz in the U.S. is creating growing excitement abroad. On slide nine, you will find our execution plan. The positive feedback we have with U.S. customers underscores the remarkable opportunity we see globally with Sundeo. Internationally, we plan to launch Sundeo in early 2023. In the meantime, we continue our remarkable expansion across existing and new channels in these important regions via our elite system. Second, we continue to invest in our providers. We are proud to be one of the world's top trainers of opticians. We view the unique relationship that we have created with this community via continuous education as a competitive advantage. This highly engaged community of providers and estheticians, the Hydrofacial Nation, are our most powerful advocates. They inspire and educate consumers around the world every day about the benefits of Hydrofacial. Unleashing human magic by continued investment in education of our provider and esthetician community is a key pillar to driving increased utilization and brand awareness. Providers who go through our training become our most loyal, engaged, and enthusiastic brand evangelists. They typically record double-digit growth in consumable purchases, and their second system sales happen 50% faster. One example of our investment in providers is Estee Palooza, an event we created to educate and celebrate our wonderful hydrafacial community. You can get a flavor for Estipalooza here on slide 10 and the enormous amount of content our highly engaged community creates for us on social channels. On slide 11, you will see examples of other investments we have made in our providers. We featured Hydrafacial at high-profile trade shows in every region and have taken Hydrafacial on the road with our Glovolution tour, which we extended to Europe this year. Third, we continue to invest in initiatives to drive brand awareness. The biggest growth opportunity for Hydrafacial is to increase our brand awareness. We have a best-in-class product that is loved by those who have tried it, and we made significant strides this quarter to expand our funnel via investments in digital media, partnerships with influencers, and key opinion leaders such as Dr. Paul Nassif and the expanded Glovolution Tour. As you see on slide 12, more consumers are seeking information about hydrofacial, with Google search activity reaching an all-time high in Q2, up 30% year over year. We also generated record levels of earned media value this quarter. As we look ahead to Q4, we will launch an incredible hydrofacial booster partnership with JLO Beauty by Jennifer Lopez. We are excited about the positive impact this will have on brand awareness, given the strength of J-Lo's global community of loyal fans. We are also driving brand awareness by expanding touch points with consumers. As you know, late last year, we beta tested an at-home device called Glow and Go. Through this test, we gained valuable insights that validated our belief in the potential opportunity of a take-home product from Hydrafacial. We will refine the current concepts with the insights garnered from this test and launch a take-home product at a future date. In the meantime, we remain laser focused on continuing the successful global rollout of Syndayo. As a reminder, revenue from Glow and Go was never part of our 2022 guidance. Fourth, we continue to build our global infrastructure. Slide 13 illustrates some of the initiatives we advanced during the quarter. The international integration of our ERP system is on track to be completed by the end of 2022, and our global efforts in hiring talent, network automation, and brand building are well underway. We expect these initiatives will generate operating leverage in the years to come. And fifth, M&A. Looking forward, we see a great opportunity in front of us to use M&A in a strategic and disciplined manner. During the quarter, we invested $2 million in Mixed, an early-stage technology-advanced personalized skincare company. It provides a great opportunity for us to test and learn in this rapidly growing space a personalization that leverages data and technology. We continue to be laser focused on delivering strategic M&A. On the left slide of 14, you will see the acquisition criteria we have previously laid out. On the right is our playbook for building our beauty health platform. As you know, we continue to be prudent in our approach and remain focused on digestible, accreted, differentiate products that leverage our unique community. Before I turn it to Leanne, I want to reiterate how incredibly proud I am of what our team have achieved in the first half of the year. Consumer interest in our confidence-boosting experience has never been higher. We attract a resilient, highly desirable consumer and continue to see strong demand. The enthusiasm of our team is electrifying, and we are eager to sustain our profitable hyper-growth trajectory. We have a tremendous opportunity ahead of us. I will now turn the call to Leanne for a more detailed discussion of our second quarter performance.