The Beauty Health Company (NASDAQ:SKIN) Q3 2023 Earnings Call Transcript

The Beauty Health Company (NASDAQ:SKIN) Q3 2023 Earnings Call Transcript November 13, 2023

Operator: Good afternoon and welcome to The Beauty Health Company Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to [Norberto Aja], Investor Relations. Please go ahead.

Unidentified Company Representative: Thank you, operator and good afternoon, everyone. Thank you for joining us today to discuss The Beauty Health Company’s third quarter 2023 financial results, which were released this afternoon and can be found on our website at beautyhealth.com. With me today are Beauty Health’s Board Member and incoming Interim Chief Executive Officer; Marla Beck and Chief Financial Officer, Mike Monahan. Today’s call will not include a Q&A session, though management will be available afterwards for any follow-up questions you may have. 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 that 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 a further discussion of risks related to our business, please see our filings with the SEC. This call will present non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings press release filed with the SEC today and available on our website. With that, I would now like to turn the call over to Marla. Please go ahead. Thank you, Norberto, and thank you, everyone, for joining us on the call today. Before I start, on behalf of the Board, I would like to thank Andrew for his leadership and commitment to Beauty Health.

I look forward to partnering closely with him during this transition period. I’m excited to join Beauty Health as the Interim CEO. For those of you who do not know me, I’ve spent my entire career in the beauty and wellness space, notably as CEO of Bluemercury for 22 years. I founded Bluemercury in 1999 and built the company from zero to a strategic sale to Macy’s in 2015, after which I ran Bluemercury as a division of Macy’s for six years under both Terry Lundgren and Jeff Gennette. My focus has always been on building high-growth, profitable, enduring companies with an acute focus on the customer, high-performing teams, and operational excellence. I look forward to bringing this skill set to Beauty Health and working with the team to drive revenue, profit, and build an enduring company, while delivering long-term value to our shareholders.

I’m confident my experience will serve Beauty Health well in addressing current challenges, while delivering on the many opportunities ahead of us. Since joining the Board, it has become evident that Hydrafacial’s ability to engage and attract consumers is differentiated with the anti-aesthetics place where consumers are more likely to know about generic treatments like fillers or laser rather than a specific treatment brand name. Regularly, providers report that their decision to buy a device is in part, because their clients ask for a Hydrafacial treatment by name. This represents a significant competitive advantage for Beauty Health. My focus is to protect Hydrafacial’s incredible brand equity and to address provider experience challenges with Syndeo, Hydrafacial’s newest-generation delivery system.

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Q&A Session

While we can all acknowledge that many mistakes were made with regard to Syndeo, we always put our customers first. As a result, we are taking some tough actions this quarter to do the right thing. Once we work through these, we can again go back to empowering the team to continue to drive our revenue and capitalize on our substantial growth opportunities. I am a believer in Beauty Health’s current strategy to capitalize on the blue sky potential in front of us and welcome the opportunity to execute on our vision. With that, I will turn the call over to Mike to discuss the quarter’s performance.

Michael Monahan: Thank you, Marla, and thank you, everyone, for joining us today. I also want to thank Andrew for his service. Even though we have only worked together for a short time, I came to know him as a passionate and dedicated leader and wish him the best in the future. Today, we released a significant amount of information, so I’d like to state a few things upfront. First, our recent financial performance is not acceptable. The Board and management are committed to delivering future value for our shareholders and have taken steps to position the company for long-term future success. Second, we did not take the decision to impair our earlier generation delivery systems lightly. Our long-standing provider relationships play a critical role in our continued success.

Nearly half of the devices we sold in the past nine to 11 years are still active. Providing reliable products and services is always our primary goal and the decisions we made this quarter protect our customers and the Hydrafacial brand. Third, our recent performance is largely a result of provider experience issues with Syndeo in the U.S. We have taken the learnings to avoid any similar issues in the future. We want to be very clear that the impact applies only to providers who use Syndeo 1.0 or 2.0 delivery systems. There was no impact on the safety or efficacy of the Hydrafacial treatment. We believe our latest generation; Syndeo 3.0 provides the best experience for our providers. Fourth, we believe the fundamentals of our business and future opportunity remains strong.

The issues we face are executional in nature, not strategic. On the system side, it’s important to highlight that our products are excessively priced relative to other medical devices, lowering the barrier to entry for providers. In addition, the economics of Hydrafacial to the provider are extremely compelling, with an average system payback period, of under, six months. Our business is a razor-razorblade model with our Consumables segment representing a growing predictable, long-term and high-margin recurring revenue stream. Even with the Syndeo disruption, overall consumable sales grew 17% year-over-year. As we continue to grow our delivery system installed base and put the Syndeo issues behind us, we expect to see further acceleration in our consumables business.

We have a tremendous runway to grow domestically and overseas. Despite challenges with U.S. delivery system sales this quarter, China continued its high growth at plus 79% or plus 98% year-to-date and continues to have strong average selling prices, positioning the Asia Pacific region for continued long-term profitability. In the upcoming quarters, our goal is to execute with a simpler structure to meet the high expectations of our providers, customers and shareholders. The first step in this process will be delivering on both phases of our committed strategic transformation program. Fifth, our balance sheet and liquidity remains strong. And we are positioned to make it stronger with the strategic transformation program we are undertaking. We ended the third quarter with $559 million of cash and have access to an undrawn $50 million credit facility.