The Beauty Health Company

Good afternoon, everyone, and welcome to the Beauty Health Company's fourth quarter and full year 2023 conference call. All participants will be in a listen-only mode. Should you need assistance, please send to 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 and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note this event is being recorded, and I'd like to turn the floor over to Roberto Aja, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today to discuss the Beauty Health Company's fourth quarter and full year 2023 financial results, which were released earlier this afternoon and can be found on our website at beautyhealth.com. Joining us on the call today are Beauty Health Chief Executive Officer, Marla Beck, along with Chief Financial Officer, Mike Monahan. Before we begin, 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. Listeners are cautioned not to place undue reliance on any forward-looking statements. For further discussion of risks related to our business, please see the company's filings with the SEC. This call will present non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most comparable GAAP measures are in the earnings press release furnished to the SEC and available on our website. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn the call over to Beauty Health CEO, Marla Beck. Please go ahead, Marla.

Thank you, Norberto, and thank you, everyone, for joining us on the call today. I want to start by thanking our Board of Directors for their trust and support as I formally take on the role of CEO of Beauty Health. I'm excited about the opportunity and I'm confident about the future of the company. I joined Beauty Health Board of Directors in 2022 because I saw a much loved brand in an under-penetrated market, the space where beauty meets aesthetics. I built my career in this space and bring significant experience in sales, operations, and new product development to the role. I founded Blue Mercury in 1999 as a specialty beauty retailer featuring a selection of curated products alongside in-store aesthetic treatments. It is a common format today, but it was novel when we started. We grew Blue Mercury to nearly 200 stores with two private label skincare brands, a healthy e-commerce business, and strong loyalty penetration before a strategic sale to Macy's in 2015. While my passion for the sector and knowledge of products and formulations served me well, It was operational excellence, financial rigor, and a clear commitment to the consumer that made Blue Mercury a success. I can see clearly how to put these elements in play for beauty health. Over the last few months, I've spent my time meeting with our providers, getting to know our sales team, testing our products, and gaining a deep understanding of our operational capabilities. During this time, I've come to understand the unique proposition of our brand and products, the engagement of our providers and consumers, and the wide-open opportunity ahead. I also understand the careful work that will be required for Beauty Health to meet our ambitions and growth potential. The board, the executive management team, and I are fully aligned to deliver against three key priorities over the near term. We will drive sales excellence, operational excellence, and financial discipline. Our first priority is sales excellence. The treatment room is the center of our business, and providers and our sales teams are the face of the brand in many ways. I learned early in my career the importance of staying close to the customer from helping estheticians turn rooms at our Blue Mercury store in Georgetown because they were so busy with treatments, or helping to sell on the retail floor during the busiest holiday periods. And so that's how I asked the Beauty Health Executive Committee to start the year, in the treatment rooms with providers. We fanned out across the globe with our frontline sales teams to meet more than 50 providers in the past 50 days. The feedback was insightful and grounding. I will share just a few themes we heard. First, providers know and appreciate that we put them front and center. Second, they agree that despite the issues with the early versions of Findeo, Findeo 3.0 is a better platform. Third, they recognize and value the unmatched efficacy of our treatment and the power of the Hydrafacial brand to bring consumers through their doors. Importantly, the challenges providers experience with Cindea 1.0 and 2.0 have not impacted the consumer experience. We hear repeatedly from providers that Hydrafacial is a brand clients ask for by name. We see this in the steady consumables revenue growth in the Americas, and in indicator metrics like Google search trends, which show an uptick in interest globally of 21% in 2023 versus 2022. We are fortunate to have an experienced and tenured sales team who have developed deep relationships with our providers. It is incredible to see their connections and willingness to go above and beyond. Our training and education team is best in class, supporting providers in their craft and helping them to build profitable revenue streams for their businesses. And our marketing team is thoughtfully building on a brand loved by providers and consumers alike, an incredibly unique and valuable element of our business in an industry that is largely driven by brand-less treatment modalities. We will continue to hold ourselves to high-performance standards expected from Hydrafacial and always put our providers and consumers first. Our second priority is operational excellence. We will tighten our operations, prioritizing our focus on our strongest growth opportunities and establishing accountability across our supply chain. We are undertaking a total review of our full manufacturing and operations footprint, and we'll provide an update on our findings later this year. Much of the recent focus has been on executing the Cindeo program announced last quarter, ensuring all CINDAOs globally meet our latest 3.0 standard and that we protect our valuable provider relationships. The early feedback regarding CINDAO 3.0 is positive. While we still hear some concerns regarding the 3.0 system, the level is consistent with industry standards and we are addressing issues that come up quickly. We will continue to prioritize operational excellence and always with the provider in mind. Finally, our third near-term priority is financial discipline. We will be cost-conscious in everything we do, balancing our cost structure with revenue and opportunity. We will bring increased transparency and consistency to our financial results through improved forecasting. Mike and I are aligned on this point, which you can see clearly in our fourth quarter results with revenue and adjusted EBITDA in line with guidance. Mike will share these details shortly. These three near-term priorities, sales excellence, operational excellence, and financial discipline, are foundational and necessary to operate from a position of strength and leverage the opportunities in front of us. Since joining the board in June of 2022, a few things have become very clear to me about the significant growth runway, which we will see begin to take shape in the second half of 2024 and beyond. We see an attractive opportunity around consumables to drive further penetration. This is a focus of mine. We will have more to report on our plans and progress later this year. We also see a clearer opportunity to grow our device install base by leveraging the specific value we bring to each provider channel, whether in medical practices, med spas, hospitality locations, retail, or with single room SDs. We are in the early innings of addressing the opportunity across the vast majority of markets where we operate. Increasing penetration in existing markets to achieve scale is something we are confident we can execute on. I will emphasize, however, that our focus for now is squarely on implementing a transformation of the company. This entails driving sales excellence globally, keeping our provider at the center of everything we do. investing the necessary resources to drive operational excellence, and operating with added financial discipline and with a more strategic and optimal deployment of our resources. As we continue to build and rebuild the foundation of beauty health, I'm confident we will soon be able to leverage the opportunities ahead of us to deliver long-term value to our employees, partners, and shareholders. We have a magnificent brand, terrific products, strong partner and customer relationships, healthy underlying market trends, and ample resources. There is no reason why we shouldn't count on better times ahead. With that, I will now turn the call over to Mike to share details of our Q4 and full year 23 performance.

Thank you, Marla. I'll start by commenting on our full year 2023 financial results and fourth quarter performance, as well as provide details behind our financial guidance for 2024. Revenue for the full year 2023 came in at $398 million, representing 8.8% year-over-year growth. Revenue is driven by steady consumables growth in the Americas and strong international performance with nearly 43% of sales coming from APAC and EMEA. Global equipment revenue was relatively flat for the year, up 0.2%, primarily driven by lower provider adoption in the Americas due to Cindeo challenges. Total active machines in the field increased 24% to 31,446 units over the course of the year as we grew our provider base. Consumable sales increased 19.9% year-over-year to 191.4 million, reflecting continued and growing consumer interest in the hydrafacial treatments. Consumables represented 48.1% of total revenue. Gross margin for the full year of 2023 was 39% versus 68% in the prior year period on a GAAP basis, and 62.8% versus 72.6%, respectively, when we adjust for non-cash expenses and selected add-backs. The primary drivers of the decline on a GAAP basis were the Sandeo 3.0 program, and higher charges related to other discontinued excess and obsolete products. Adjusted EBITDA came in at $24.3 million, or 6.1% of revenue, versus $46.1 million, or 12.6% of revenue, in the prior year, representing a 47.2% decline year-over-year. Moving to fourth quarter performance. Fourth quarter 2023 revenue and adjusted EBITDA results were at or above the guidance we gave on our third quarter earnings call. Revenue for the quarter declined by 1.3% year-over-year to $96.8 million. We saw America's revenue decline 8.5% year-over-year, primarily driven by soft device sales due to customer caution around Sandeo and higher interest rates. As Marla mentioned, we are beginning to see Sandeo concerns subside and expect capital momentum will pick up. For the quarter, APAC revenue grew 17.3% year over year to 18.7 million. China accounted for 14.2 million of the region's contribution, showing 71.8% year over year growth. The performance was driven by strong delivery system placements reflecting our success in penetrating the market, and the significant potential to grow our nascent presence as well as a partial COVID shutdown during a portion of Q4 2022. EMEA Q4 revenue grew 8.4% year-over-year to $18.8 million, with strength coming from consumables. Moving on to revenue by product type, for the quarter, Consumable sales of $52.2 million eclipsed equipment sales, accounting for 53.9% of revenue and a 10% year-over-year increase. On the system side, we saw a 12% decline year-over-year in revenue to $44.6 million, driven by lower system sales in both the Americas and EMEA, partially offset by 66% revenue growth in APEX. During the quarter, we sold 1,551 systems at an average selling price of $28,783, up year-over-year, primarily due to a favorable mixed shift towards direct markets in APAC and EMEA, and a higher percentage of Sandeo systems sold. Of the 1,551 systems, 341 were trade-ups. We delivered consolidated GAAP gross profit of 45.7 million, resulting in a GAAP gross margin of 47.2%. During the fourth quarter, we incurred inventory-related charges of 8.7 million. We did not add back these charges to our adjusted gross margin, as our intention is to minimize our add-backs going forward. In 2024, we are focused on improving our demand planning process and overall inventory management. Adjusting for non-cast charges such as depreciation, amortization, and stock-based compensation and incremental Sundeo program charges, adjusted gross profit was $52.8 million for a 54.6% adjusted gross margin. Selling and marketing expense was $32 million, down approximately 17.9% year-over-year, reflecting a strategic pullback in marketing spend as well as lower compensation and sales commissions. R&D expense was $3 million, up $1.6 million year over year. G&A expense was $29 million, up $0.5 million year over year, primarily driven by higher severance, bad debt reserve, depreciation and amortization, and software expenses. Altogether, this resulted in a net loss of $9.4 million. Normalizing for non-cash items and certain discrete charges, our adjusted EBITDA was $3.4 million, primarily due to gross margin pressure. This compares to a net income of $6.5 million and adjusted EBITDA of $17.6 million in Q4 2022. Moving to the balance sheet, we ended the quarter with approximately $523 million of cash. As of December 31st, we had approximately $70 million remaining on our existing share repurchase authorization. In the fourth quarter, we repurchased 9.9 million shares at an average price of $2.80 per share. In January of 2024, we deployed 57.8 million of cash to purchase 75 million of our debt. We feel comfortable with our current liquidity position, and together with our board, we'll continue to evaluate capital allocation, including debt management. We will provide investors with any updates on our capital allocation on future quarterly calls. Our inventory stood at approximately $91.3 million at the end of December, a decrease compared to $109.7 million in December 2022. We increased our inventory during the fourth quarter as we began to build and deliver replacements in DAO 3.0 units to our provider base. Additionally, at the end of the fourth quarter, we had approximately 1,300 trade-up elites on our balance sheet at the estimated resale price less our cost to resell. We are planning to sell through this inventory over the next two years and have factored in roughly half of the existing inventory to be sold during 2024. Starting in 2024, we are no longer taking back older equipment to resell, and instead, we'll offer our providers other incentives to upgrade. Including our sales of new 3.0 machines, we ended our fiscal year 2023 with roughly 9,500 Sundeo systems sold globally, and approximately 3,000 systems are left to be upgraded to the 3.0 model. We continue to make progress on this initiative and expect to be completed with the program during the first half of 2024. Our December year-end accrual for the Sundeo replacement program was $21 million. down from approximately $32 million at the end of September 2023. We have a year-end warranty accrual of approximately $6 million as of December 2023 to cover our total global systems, inclusive of extended Zendaya warranties we issued to support our providers during 2023. Next, I want to update you on our business transformation program that we announced in September. As a reminder, our initial target for the program was $20 million in annualized Phase I cost savings beginning in March 2024, with an incremental $15 million of annualized Phase II cost savings beginning in June 2024. Phase I gross cost savings of approximately $15 million were realized in Q4 of 2023 by reducing our workforce by roughly 10%. Planned phase two cost savings were expected to be driven by optimizing manufacturing operations and reducing operating spend. In 2024, we made the decision to reallocate most of these initial and expected cost savings towards necessary investments in systems, processes, and training to implement stronger management of and controls around our supply chain and inventory. We recently identified a material control weakness in our inventory controls and are making the necessary investments to address this issue immediately. We expect many of these investments to be short-term in nature and to position us to realize meaningful cost savings in future years. Additionally, we will continue to work through other areas where we believe we can drive efficiencies and reduce our overall spend. We believe these actions will result in long-term net savings. I would like to take a moment to discuss the revenue cadence and seasonality of our business. Revenue is typically highest in the second and fourth quarters of the year. This is due to two factors. First, capital purchases historically are largest in the fourth quarter as our provider base often has clear visibility into their annual capital spend allowance by that point in the year. Second, the second and fourth quarters will often have the highest consumer demand for hydrafacial treatments in the spring and then again in the fall. This is consistent with aesthetics and beauty trends and bolstered by our twice annual consumables promotion periods in May and Black Friday in November. Given the size of our growing business, these two drivers have an impact on the cadence of our revenue. At the same time as the first quarter of each year is a traditionally slower revenue period for the business, we see a large share of sales and marketing spend in the form of the major trade shows and events during Q1. These shows and events are important lead generators and training for the year, but the spend versus revenue puts pressure on the quarter's EBITDA. It is important to remember that our business is a razor, razor blade model with roughly even revenue split between capital and consumables today. Our consumable segment represents a growing predictable and high margin recurring revenue stream. Longer term, as with any razor razor blade model, we can expect consumables will become a larger portion of our revenue mix and the seasonality of the business will flatten with revenue becoming more evenly distributed over the year. Keeping in mind the seasonality of our business, I'll move on to guidance for 2024. In the first quarter, we expect net sales to be 77 to 83 million dollars and an adjusted EBITDA loss of six to nine million dollars. We expect revenue to be down year-over-year in the first quarter of 2024, primarily driven by soft equipment sales in the Americas as we regain provider confidence in Sundeo 3.0 with a return to growth in the back half of the year. Additionally, we expect to face a challenging year-over-year comparison for system sales in APAC and EMEA in the first half of 2024 with our international Sundeo launch in the 2023 comparable period. Adjusted gross margin is expected to be lower in the first half of 2024 compared to the first half of 2023 as we make investments in our controls, processes, and procedures and overall supply chain. For the full year, we expect to improve slightly year-over-year with supply chain efficiencies later in 2024, partially offset by pricing pressure as we transition away from our trade-up program and support our sales efforts with lower average selling prices for our systems. Additionally, in the first half of the year, we will plan to continue to invest in sales and marketing to generate leads as is typical in our industry. These expenses are expected to lessen in the second half of the year. Resulting from the above assumptions, for the full year 2024, we are projecting revenue growth to be flat to up single digits year over year, but expect to deliver adjusted EBITDA of $40 million or greater as we are prioritizing growing profitability alongside the foundational priorities Marla discussed. As we stated on our previous earnings call, our goal is to execute with a simpler structure while meeting the high expectations of our providers, consumers, partners, and shareholders. Our action plan is clear. We'll increase our footprint through new capital equipment sales. We plan to increase consumable sales per system stabilize the business, and complete our Cindeo 3.0 replacement program and drive profitability.

I'll now turn the call to the operator for Q&A.

Ladies and gentlemen, at this time, we'll begin the question and answer session. Once again, to ask a question, you may press star and then one on your touch-tone telephones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys. To withdraw your questions, you may press star and two. In the interest of time, we do ask that you please limit yourselves to a single question. At this time, we'll pause momentarily to assemble the roster. And our first question today comes from Olivia Tong from Raymond James. Please go ahead with your question.

Great. Thanks. Good afternoon. I wanted to build on some of the comments that you made about sales growth and cadence, as it would suggest sort of a low to mid single-digit growth in Q2 to Q4. So can you talk about the building blocks to get you there? And then secondly, you mentioned in your prepared comments a strategic pullback in marketing spend. You also said that the customer didn't really see any issue, and that was a really important point. So could you talk about the decision to sort of curtail marketing spend? Because I would imagine that, you know, given the disruption behind the scenes, if the customer didn't see it, you would want to maintain that marketing spend to make sure that they, you know, they aren't aware of any disruption behind the scenes. Thanks so much.

Hi, this is Mike.

I'll address the first or both questions I can address. So the first part was around the overall guidance. So let me talk a little bit about what's driving that. So there's a couple of anticipated drivers of pressure in the first half of the year that I can talk through. And then we're expecting to return to growth on the top line in the back half of the year. The first driver is, you know, system sales are projected to grow in Americas as we complete our Sandeo replacement programs. we're already starting to see increased interest as we move past the challenges of the Sandeo launch. The second piece I mentioned in the prepared remarks is in the international markets, we launched Sandeo in the first half of last year. So as we look to that comp, it gets a little bit easier in the back half of the year as we move past that. The third piece is really around consumable sales per system. As a result of some of the challenges with Zendaya, we saw pressure in the back half of 23. We're actively working with our providers to support them, and we expect to increase those consumable sales per system as we enter into the back half. The second part of your question was around marketing spend. We traditionally spend more marketing up front, as we talked about, related to provider trade shows, conferences. They tend to be front-loaded in Q1 specifically and a little bit in Q2 during the year. And a significant portion of that expense runs through our sales and marketing. So you start to see that typically run down in the back half of the year. One thing I would like to highlight is we still have allocated costs in the back half of the year, so it's not like we're turning that spend off. We're still planning on spending and supporting our providers.

It's just to a lesser degree in the second half than it is in the first half.

Our next question comes from Oliver Chen. Please go ahead with your question.

Hi, thanks, Marlon, Mike. On some of our research, we're still seeing some issues with Sandeo 3.0, but it sounded like it's in really good shape. Just any color on what gives you confidence and risk factors there. And as you mentioned, supply chain and controls both have opportunity. How would you contrast what needs to be done with respect to controls relative to supply chain. And finally, capital allocation priorities. You mentioned them on the call. Just would love a framework for how you're thinking about capital allocation priorities going forward. Thank you.

I'll start, and then Mike can pick up the rest. So I would say with CINDEA 3.0, we're encouraged by what we're seeing. It's better than 1.0 and 2.0, but we still have work to do around getting quality to the level which we think is what we want. And so there's still work, but we've made a ton of progress. So I think that's a start. I'm going to let Mike take the supply chain and capital allocation pieces of your question and add anything to sort of what I said, if you would like, Mike.

Sure. On overall operations, we're making investments in information management, so systems, our overall process and procedures, and to make sure we're looking at the right things and managing our overall inventory controls. And that's some of the things I talked about, why we assess ourselves with the material weakness. The material weakness is really around making sure we have the right people with the right experience and the right processes in place to effectively manage inventory and the related obligations. The second part of your question around capital allocation, that's something right now where we're spending time with the board. We have a capital allocation committee on the board we meet regularly and are discussing. I don't really have anything more than what we've actually done to address right now, but as soon as we do make any additional changes, we'll be sure to update investors then.

Our next question comes from Alan Gong from JP Morgan.

Please go ahead with your question.

Thanks for the question, and congratulations, Marla, for the position. Just to start off on kind of like a higher level, I'd imagine that your previous targets, you know, presented at the 2022 analyst are no longer in effect. But just when we think about, you know, the outlook for the company, once we move past this, you know, continued transition period in 2024, how should we think about your prioritization between, you know, driving continued top life growth and EBITDA? As it seems like, you know, in 2024, you're kind of rebasing EBITDA and, you know, growth that might be suffering a little bit as a result. So how should we think about that going forward?

We're not in a position to give long-term guidance today, but what we can talk about is our focus is we really believe that there's, you know, growth in this business, a lot of room to grow. We think that we can grow profitably, and that's a specific focus of what we're working through now. The levers that we expect to improve upon over the long term is we think there's opportunity in gross margin. And then as you look in OPEX, You know, we talked about some of our initial OPEX savings that we're reinvesting back into the business over the short term, but we do believe there's long-term scale in our operating expenses that we can realize we're just taking a little bit of time this year to make sure we can implement them in an effective way.

Our next question comes from Susan Anderson from Canaccord Genuity.

Please go ahead with your question.

Hi, good afternoon. Alec Legg on for Susan. Just wondering if you could talk about the trends of the consumable sales by region. Looks like America's was very strong this quarter, but APAC kind of took a step back. And then can you provide any details such as usage frequency by machine and then some of the add-ons? And then longer term, where do you think that add-on business can go?

Sure, I can talk a little bit about the consumables growth, and then I can move on. So, overall, the increase in consumable growth was driven by the Americas and EMEA, and it was offset in APAC, as you mentioned. APAC consumables revenue is down 30% year-over-year in the fourth quarter. That was primarily driven by softness in the distributor channel, which we're in the process of, there's often some timing relating to the distributor channel, but we're in the process of addressing and researching right now. It's important to note China consumable sales, which are mostly sold directly, were down a couple of percentage points year over year. So as we continue to grow our systems base in APAC, we believe there is a large opportunity to drive consumable revenue in the future. Some of the things that we're investing behind are additional boosters and products that are specifically designed for the APAC markets. that we can talk about kind of later this year as we plan to launch them. The second part of your question, I think, was around overall consumables usage. We're still working through the specific metrics that we want to communicate externally, but one of the key metrics that we focus in on internally is consumable sales per system. And this is something that we're tracking and expect to drive up in the future. When you look at Q4 and last year, that was a down year over year, primarily because of the APAC market, and we're focused on addressing it based on the things I just mentioned.

Our next question comes from John Block from Stiefel.

Please go ahead with your question.

Thanks, guys. Good afternoon. Maybe I'll just try to jam two into one. Just first, you're Your worldwide consoles, I believe they were down roughly 35% year over year. Maybe if you could just talk about the overall capital environment and how you think you guys did from a market share perspective, you know, relative to that down 35%. And then just, you know, you talked about the EBITDA and the back-end weighted nature, but just how do we think about the free cash flow? I mean, obviously, Mike, we've seen in past years with you guys a big delta between EBITDA and free cash flow. asking about that because, you know, we're going to start coming up with the converts in 2026 before you know it. It seems like you feel pretty good considering you still proceeded with the share repo, but any color would be, would be helpful. Thanks guys.

So I can take the first, I'll take the first couple and then Marla, if you have other things that I think if I understood John, the first part of the question, it was around kind of our overall equipment revenue and sales and how that's relative to the market. I don't, I don't have specific data on how we compare to the market. I think for us, some of the challenges we saw in equipment sales really had to do with some of the issues we had internally with Sundeo overall. And so, as I said, we're starting as we launched 3.0 and have really reached out to our providers. We're starting to, you know, our expectation is that over the next couple of quarters, we're going to see that kind of pick back up. The question around EBITDA and free cash flow, you know, We talked about in the guidance that we would do at least $40 million or above of adjusted EBITDA. You know, our intention is not to have significant cash-based add-backs to get to adjusted EBITDA. And so our CapEx projections for the year will be roughly $15 to $20 million. So overall, our expectation in the guidance that we gave is that we would generate, you know, flat to, you know, some adjusted free cash flow or some free cash flow, you know, from those numbers. In terms of the overall capital structure, as we talked about, you know, we're very much aware of the, you know, debt maturities on the convert, which is in the later in 2026, in Q4 of 2026. And so that's something that we feel like we have time and are in a good position where we sit today.

Our next question comes from Corrine Wolfmeyer from Piper Sandler.

Please go ahead with your question.

Hey, good afternoon, team. Thanks for taking the question. So I think you alluded to, and there was a prior question on some of the other issues Cindeo 3.0 has been seeing. I mean, we've all done our work, so I just want to understand, like, what exactly are you seeing that are ongoing things, and what are you doing to address them? And then I think in the prepared remarks, you also said, you know, you're getting rid of the trade-up program, but maybe offering some incentives to upgrade to Cindeo. Sounds like that might be some pricing actions. So what exactly are you doing in lieu of the trade-ups, and what should we be expecting with that program going forward? Thanks.

I mean, I'll work on that. I mean, the Cindeo 3.0 issues, again, aren't the same issues we've had in the past, right? We have some noise issues, some issues with this and that getting damaged and shipping. These are quality issues we need to continually focus on to improve, but not like the issues we had with 1.0s and 2.0s. This comes with sort of full operational review on every single thing we do around manufacturing, fulfillment, and supply chain, which is an absolute priority for us. Mike, do you want to add anything on that?

No, I can address the trade-ups, if you want to.

Yeah, I mean, with trade-ups, I mean, we're just restructuring sort of how we do them, which is offering incentives to actually trade into the Sundeo without taking the existing device back. So what happens really is that it's an added device for many of our providers.

And our final question today comes from Ashley Helgens from Jefferies. Please go ahead with your question.

Hey, thanks for taking your question, I guess, just to kind of ask in a different way. I think you mentioned some of the providers have given, you know, some concerns around the Zendaya 3.0. Just any colors you can give us on like the concerns you're hearing from the providers would be super helpful. And then, you know, you've had a significant growth in China. Any kind of color on the market there, like where you are, like what inning you're in in the China market, how much runway do you still have there would be super helpful as well. Thanks.

I can take in if Marla has anything to add. So let me take your, there's not really much more that I have to add than what Marla talked about, about what we're seeing with Sundeo. I'll just kind of repeat, these are more quality control issues that we're addressing. And when you look at the overall guidance and when we talk about reinvesting back into the business in the near term, it's really around those types of things to ensure that when a product comes off the the production line that we are doing the right things in terms of inspecting it, making sure it gets to our ultimate provider in good shape. Some of the issues we've had recently are around if some of the products have moved during shipping, so it's creating noise. There's been some aesthetic problems with scratches or issues with the machine itself. So we're working to kind of make sure we address that and make sure that our providers get a quality product upon receipt. The second part of your question was around China. Yeah, we think we're early in China, as we've talked about. We think there's a lot of growth there. We're still working to introduce new boosters, new products on the consumables. And as you can see, based on the results, we're still you know, growing quite nicely in terms of deploying equipment there. And we expect that to kind of continue and factor that into our guidance.

And, ladies and gentlemen, with that, we'll conclude today's question and answer session.

I'd like to turn the floor back over to Ms. Beck for any closing remarks.

Thank you all for joining us today. We're excited. This is the beginning of our time with you and look forward to really doubling down and getting to where we need to be. Thank you.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.