SkinHealth Systems Inc.

Good day and welcome to the Beauty Health Company first quarter 2023 earnings conference call. All participants will be in a 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 a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Eduardo Rodriguez, Senior Director of M&A and Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Beauty Health Company's conference call to discuss our first quarter 2023 financial results, which were released this morning and can be found on our website at beautyhealth.com. We also encourage you to join the webcast available on our website which contains a presentation that will be referenced during this call. With me today are Beauty Health's President and Chief Executive Officer Andrew Stanlick and Chief Financial Officer Lian Wu. 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 present non-GAAP financial measures. 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.

Thank you, Eduardo. Good morning, everyone, and thank you for joining Beauty Health's first quarter 2023 earnings call. Today, we'll discuss the drivers of our Q1 results and our raised outlook for fiscal 2023. I will discuss our performance and accomplishments for the first quarter. Later, Leanne will provide more detail on our financial results, after which we will be happy to take your questions. As always, I want to start by thanking our beauty health team members, our estheticians and provider partners, who together make up our global hydrafacial nation for their continued hard work, passion and creativity. During the first quarter, our team made meaningful progress against our five-point master plan, positioning us well to capture the tremendous growth we see ahead for our business globally. All in all, we delivered a solid 14% net sales growth for Q1, continuing a quarterly trend of double-digit revenue growth. Quarter one was highlighted by a particularly strong March, which was our second highest net sales generating month ever. demonstrating a building momentum ahead of the Q2 international launch of our Sundeo system and reinforcing our confidence in our 2023 guidance. Q1 performance overall was anchored by 21% year-over-year consumables net sales growth, a signal of the strong underlying demand for hydrafacial treatments as consumers continue to prioritize products and treatments that make them feel good about themselves. On slide 5, you see that consumables net sales in the Americas grew a staggering 34% for the quarter, demonstrating the continued strong consumer demand for hydrofacial. In EMEA, we achieved 13% growth year over year. Excluding Russia's 1.2 million contribution to Q1 consumables net sales in 2022, EMEA's consumable growth was 35%. In APAC, COVID-related shutdowns in China created consumable sales softness in January and February. However, March saw a rapid acceleration as the country reopened. On the delivery system side, net sales grew 9% year over year. As a reminder, we saw a very robust performance in the first quarter of 2022 with the launch of Sindeir, which creates a difficult comparison for growth in the first quarter of this year when combined with the loss of the Russia business. Additionally, we saw a natural degree of holdback on the delivery systems from providers outside of the U.S. in anticipation of Cinde's international availability in Q2 2023. Finally, going back to China, prolonged COVID closures during the early months of the quarter weighed on device sales performance. However, we saw a strong resurgence as of March. In fact, March shattered the previous monthly record for delivery system sales in China by two and a half times, as providers readied to meet consumer demand. After visiting China in April, my first time since the pandemic, I am very optimistic about the potential of returning to pre-pandemic growth rates. The investments we made in China in 2022 have served us well, and I can attest that we have a strong team and operational infrastructure in place in order to seize the large opportunity in the strategic market. Even with these factors at play, the number of new delivery systems sold globally during the quarter grew 4%. and our ASP grew 17% year over year. As we have previously discussed, the first quarter is historically our smallest quarter of the year due to the natural seasonality of our business. Looking ahead to the second quarter, we are very encouraged by the return of consumer and provider demand that we see from China and the early performance of Cindeo's international launch. This, together with the investments we made last year and favorable market trends, gives us the confidence to raise our 2023 net sales target and reconfirm our 2023 adjusted EBITDA margin guidance and long-term 2025 targets. As we typically do, I would like to walk you through the progress we have made against our five-point master plan in Q1. The strategy remains consistent and is laser-focused on delivering profitable growth while moving with speed and agility to capture the tremendous opportunity we see ahead of us. Starting with our first pillar on slide seven, in Q1, we marked the first anniversary of the US launch of Sendero, our revolutionary connected delivery system. March 30th, we announced Sendero's international availability to great excitement at the AMWC trade show in Monaco. Today, Cindea Systems are live in 14 of our direct markets, with the balance to follow by the end of the year. One year on from its debut, we have placed nearly 5,000 Cindea Systems across the world. We are very pleased with its uptake to date and expect growth to continue as we execute on our international Cindea launch and capitalize on broader sector tailwinds. In fact, the MedSpar channel, the core of our business, is expected to grow at a 14% CAGR for the next five years in the U.S. alone. And we'll continue our Cindea rollout with the distributor markets in 2024. In the meantime, our elite system will continue to be sold in our distributor markets, including those elites that we refurbish in connection with our Cindea trade-up program. The second strategic pillar is a commitment to investing in our providers. Our world-class training programs and experience centers are instrumental in fostering these connections. To date, we have trained more than 40,000 estheticians globally, turning them into ardent brand evangelists. In fact, those who have gone through one of our training programs not only generate double-digit growth in consumable purchases, they are much faster to purchase a second system for their practice. These trainings teach our providers valuable skills and best practices when it comes to hydrafacial treatments, and offer business-building acumen to drive practice growth. This month, we launched a new business-focused curriculum, a mini-beauty MBA, if you will, which targets med spa owners, medical directors, and physicians, further deepening our relationship with our community. These programs are taught virtually and in our experience centers across more than a dozen global cities, including New York, London, Paris, and Shanghai. The facilities act as more than just training hubs. They serve as showrooms to host influencers, editors, and key opinion leaders in every region. I recently had the pleasure of opening our new experience center in Beijing, our second in China after Shanghai. This state-of-the-art facility includes a live streaming studio for 24-7 production of localized, engaging content. Reopening China, we are incredibly excited about the opportunity in the strategic market. Next, we continue to build awareness for our much-loved Hydrafacial brand. The primary objective of our marketing engine is to drive traffic to providers, bringing buzz and hype through their doors. You may have seen this in our birthday cake takeover last week, photos of which you can see on slide 9. Rang the Nasdaq opening bell, showed up on Times Square billboards, and seeded birthday cakes to top influencers around the world. Together with our partners, we are creating unique attention-grabbing moments that capture the public's imagination. Just last week, our teams collaborated with Sephora's top doors across the U.S. to host exciting co-branded events. As a reminder, PERC bihydrafacial treatments are available at Sephora's in the U.S., Canada, the U.K., and Southeast Asia. We carefully measure a variety of consumer engagement metrics, such as earned media value and Google search trends, to ensure the effectiveness of our marketing programs. As I mentioned earlier, consumer enthusiasm for our brand remains as strong as ever, with the two most recent quarters representing our top two highest consumables net sales quarters ever. You can see from the headlines generated and consumer awards earned that Hydrafacial has never been hotter in the eyes of consumers. As one beauty editor put it, Hydrafacial is having a renaissance. Concretely, you can see on slide 10 the results generated in earned media value, which grew 134% year-on-year, despite comping against the buzz around Cinder's U.S. launch in Q1 of last year. Today, Hydrafacial is a leader in earned media value in aesthetics, with more than twice the combined EMV of the next five peer brands. we are reaching towards the level of conversation only seen by mainstream beauty brands, cracking the top 50 US skincare brands in March 2023, as measured by Tribe Dynamics. A rising consumer awareness also shows through in organic Google search trends, which are up 13% year-on-year and 53% versus 2021. As we discussed last quarter, the planned elevated investments we made over the past two years were designed to build scalable global infrastructure. One of the important elements of that investment was building our foundation in China, a critical growth market for us. With a TAM of at least two times that of the US, China is a massive untapped opportunity for beauty health. Recent reports estimate that China's middle and upper classes will increase by over 80 million to account for 40% of the country's total population by 2030, This is Hydrofacial's prime target consumer. While the COVID lockdown persisted longer than any of us reasonably predicted, we are pleased to see a budding resurgence in China as economic activity returned in earnest starting in March. Enthusiasm for beauty and aesthetics treatments in China is rapidly growing, particularly for non-invasive and minimally invasive treatments. Hydrafacia, with its gold standard positioning and relatively low cost of capital, is the perfect gateway product for providers to capitalize on this sector tailwind. During my recent visit to the market with Leanne, there was a palpable excitement around the launch of Cinder and its potential to revolutionize the future of preventative skin health. In fact, nearly all our providers now report operating at full capacity, with traffic nearly back to pre-COVID levels. We look forward to sharing more on our performance in the region over coming quarters as we continue to bring Hydrofacial to the opportunity-filled Chinese market. Moving on to our strategy as it relates to M&A on slide 12. Since our inception, our vision has been to build beauty health into a multi-brand platform through a build and buy strategy. have a strong cash position to pursue inorganic opportunities, and we continue to be opportunistic and evaluate opportunities that provide differentiated products or services, are complimentary to our platform and community, and are financially accretive. A tangible example of our approach to M&A is our recent acquisition of Skin Stylus, an FDA-cleared microneedling device that we discussed on our last earnings call. As an esthetician-founded brand, SkinStylus fits seamlessly into our platform and expands our portfolio in the treatment room. I am pleased to report the integration of the business is now complete. While we continue to expect an immaterial contribution to net sales from SkinStylus in 2023, we are very excited about the potential upside in 2024 and beyond, the details of which we will share in due course. Before Leanne begins her update, I would like to again thank our teams around the world for their strong performance. This quarter, we continued to drive double-digit top-line growth, announced the highly anticipated international launch for Cinder, and integrated a new product into our platform. Friends, we are seeing aesthetics play perfectly into our multi-brand ecosystem, supporting our strategy and validating our long-term growth runway. Continued strength of our consumables business, the growing consumer interest in our brand, and our unique third-party brand partnerships, when combined with the international expansion of our breakthrough Cindea system and competitive moat of patented technology, fuels our ability to win in 2023 and beyond. And with that, I will turn the call to Leanne.