Good morning, and welcome to AirSculpt Technologies First Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. As a reminder, today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Dennis Dean, Chief Financial Officer at AirSculpt Technologies. Thank you, sir. You may begin.

Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies results for the first quarter. Joining me on the call today is the company's Founder and Executive Chairman, Dr. Aaron Rollins, and Chief Executive Officer, Todd Magazine. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10-Q when filed, which will also be available on our website. With that, I'll turn the call over to Dr. Rollins. Aaron?

Good morning, and thank you for joining us on the call today. I'm very pleased with our first quarter results, which included double-digit revenue case growth and a sequential increase in average revenue per case. Our new center in Orange County, California, is off to a great start, and we are also very excited to announce that yesterday we received final approval to open our flagship center in London. This timing is consistent with what we had planned. We have a full complement of physicians to staff the center, enabling us to perform training cases starting next week and paid cases starting in June. Our next opening will be in Austin, which like Orange County, is positioned for a strong launch. We expect to receive our final occupancy permit shortly, enabling us to open in May. Our de novo pipeline continues to remain full. We are confident in our new location opportunities for 2024 and beyond. We've been an innovative company, and we continue to be committed to our innovation pipeline, which includes new solutions that will lead to incremental patient engagement, expected to be available later this year. Finally, as you will hear from Todd, we are making good progress in our cost management initiatives, which will help us fuel our de novo and innovation growth into the future. Overall, our team remains focused and enthusiastic about continuing to strengthen the AirSculpt brand and profitability and scale our business, both domestically and internationally. Let me turn the call over to Todd to talk more about the quarter and our focus for the rest of the year. Todd?

Thank you, Aaron, and thank you to everyone on the call for joining us today. I am pleased with the first quarter results, as highlighted by revenue growth of approximately 16% year-over-year, which was nicely ahead of our projections. This growth was led by 15% year-over-year case growth and a sequential uptick in our average revenue per case or our procedure rate, which was about $12,600. As we shared previously, our average rate will have some variability on a quarter-to-quarter basis due to procedure mix and promotion activities, but we expect it to be consistently in the $12,000 to $13,000 range. Importantly, a significant portion of our first quarter growth was led by our de novo centers that came on board over the past 12 months. I am pleased with their performance and continue to feel very good about our de novo pipeline going forward. On our last call, I highlighted the three areas that I will be focused on in 2023. As a reminder, they were strengthening the organization by bringing in additional talent and improving our processes; focusing on revenue growth, including ramping up our de novo expansion program; and finally, rightsizing our cost structure and strengthening our capabilities to support a much bigger and more robust fleet of centers. Let me first provide an update on our cost management efforts. As a reminder, we committed to cost savings of $2.5 million for 2023 and a run rate of $5 million as we exit 2023. We brought in an external consulting firm to partner with our team to identify several areas where we can be more efficient on process and cost. While we are still in the early stages of this effort, I am pleased to share that we are firmly on track to meet the targets we set. This will be reflected in our margins in the back half of the year. Importantly, these improvements, processes, and cost structure will allow us to continue to reinvest in our de novo openings, as well as drive brand awareness activities. For perspective, we made a small investment in the first quarter in a social media influencer, and the results were extremely positive. Our goal is to continue to find ways to fund initiatives like this to help us drive awareness of AirSculpt amongst our target consumer. As it relates to strengthening our talent, I'm excited to share that we've added a new human resources leader, as well as a new information technology leader to our executive team. The final of my three focus areas is our de novo expansion plans. As Dr. Rollins noted, this is an exciting time for AirSculpt, particularly with the opening of our London Center. I have been spending a significant amount of time on our de novo expansion program, where we have added tools and capabilities to help us continue to identify new and robust sites across the U.S. as well as continue to expand internationally. This work has given me more confidence that the runway of opportunity for new AirSculpt centers remains extremely robust. Overall, I am pleased with the results of the quarter and continue to feel good about our ability to deliver on our financial commitments to our investors for the balance of the year and beyond. Before I turn the call over to Dennis, I would like to thank the team at AirSculpt. Both our clinical and business professionals are incredibly passionate about our patients and our company and work tirelessly to help deliver an experience unlike any other in the world of aesthetics. Now let me turn the call over to Dennis to walk you through our financials and our outlook for the year. Dennis?

Thank you, Todd. Our revenue for the quarter was $45.8 million, a 15.9% increase over the prior year quarter. Our growth was led by approximately 15% increase in case volumes, which is primarily due to the addition of four de novo centers versus the prior year base. As of March 31, 2023, we operated 23 centers versus 9 at the end of the first quarter of 2022. Our average revenue per case for the quarter was approximately $12,600, a 0.4% increase over the prior year's quarter and a $400 increase over the fourth quarter, driven primarily by procedure mix. This was within our target range of $12,000 to $13,000 and we expect to sustain this range for the near term. Our cost of services as a percentage of revenue was 39.3% versus 37.1% in the same period last year. The increase is primarily related to the addition of clinical-related costs to support our growth and our customer acquisition cost for the quarter was $2,360 per case. For the quarter, our adjusted EBITDA was $10.7 million and our adjusted EBITDA margin was 23.4%, which was a decline of 140 basis points versus the prior year quarter, due to increased expense growth that we have previously discussed. And on a sequential basis, our adjusted EBITDA margin increased by 130 basis points. Our liquidity position continues to be very strong. Our cash position as of March 31, 2023, was $11.3 million and our $5 million revolver remains undrawn. Our gross debt outstanding was $84.5 million and our leverage ratio at the end of the quarter, as calculated under our credit agreement, was 1.7 times. Cash flow from operations for the quarter was $6.2 million, which represents an adjusted EBITDA conversion ratio of 58%. We continue to expect an adjusted EBITDA conversion ratio of approximately 55% for the full year. We invested $3.8 million primarily related to opening new centers, and we had a cash usage from financing activities of approximately $700,000. Additionally, consistent with the fourth quarter earnings release, we provided a non-GAAP measure reflecting adjusted net income per share diluted for the quarter of $0.10. We believe this measure represents useful information to investors by highlighting the impact of earnings per share of selected items used in calculating our adjusted EBITDA. We remain on track for healthy free cash flow generation in 2023. We continue to expect our primary uses of cash flow during the year will be to fund growth investments for the business such as adding de novo centers and driving technology innovations. We also expect to continue to strengthen our balance sheet throughout the rest of the year, positioning us to increase shareholder value. This morning, we are confirming our 2023 revenue guidance range of $187 million to $192 million, representing an 11% to 14% increase over 2022. We continue to anticipate contributions from our de novo centers to drive the magnitude of year-over-year revenue growth. As previously discussed, we started performing cases this past month at our Orange County location, and we are scheduled to begin performing cases at our Austin Center next week. As Dr. Rollins and Todd mentioned, we are pleased to report that our center in London is approved to open and we will begin scheduling paid cases starting in June. Our remaining two center locations, Raleigh and San Jose, are scheduled to open late in the third quarter, which will give us a total of five new centers added for 2023. We are also confirming our 2023 adjusted EBITDA guidance range of $48 million to $50 million, which represents year-over-year growth of 11% to 16% and margins of approximately 26% at the midpoint of both revenue and EBITDA guidance. We expect the second quarter will be our strongest quarter, while we expect the seasonal patterns in the back half of 2023 to be similar to that of the back half of 2022. With that, I'll turn the call over to the operator for some questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Simeon Gutman with Morgan Stanley. Please go ahead with your question.

Hey. Good morning, everyone. My first question is on the same-store case growth or the same-center case growth. Can you talk about how the 0.9%, I think that was the number, or the 0.8% was relative to your expectations and what should we think about as the kind of sustainable appropriate level of growth for this business?

Hey. Thanks, Simeon. It's Dennis. Yeah. From a same-store perspective, we are fairly in line with what we expected. And going forward, we're comfortable with kind of a flat to 1% sort of same-store growth. That's kind of what we're forecasting out from that standpoint.

And then maybe the follow-up then, the momentum that you're carrying is that with regard to new center openings or should that same center growth get a little bit better from that level?

Well, again, we're comfortable with the relatively flat same-store. I do believe that we're seeing some momentum out there and there's potentially some opportunity there to expand on that. But a lot of the momentum we're seeing is on new center growth as well as the existing business is holding up really well as we kind of look at our rate per case and those types of things, we're seeing some positive momentum there.

Hi, thanks, good morning. The cost of service line as a percentage of revenues is higher than what we've seen historically. I understand you've mentioned this, but I want to know if this is primarily due to the investments in quality and other areas you've discussed. I'm also interested in whether there are any inflationary factors or anything else notable to mention.

Josh, this is Dennis. There's nothing really significant there, Josh. It's a little above where we were last year at this time. We've talked a lot about the clinical investments and quality investments we've been making. It's definitely a focus for us to work on that as well to expand our margins, and that impacted us or continues to impact us a bit. We've also got a number of de novos that are coming online. As you know, early on those, you don't have as much margin expansion. But as those begin to mature, we'll see improvement there just as they ramp up. But we feel good about where we are. We think there's opportunities to expand from there.

Got you. And then I know it's always a concern, just economic pressures. I'm just curious, what are the best metrics to monitor? Is it just simply case growth? Is it more on the rate side? Are there metrics that you guys are measuring, financing, things like that, that we don't necessarily see that give you insights into how the economy is impacting the business?

Yeah. Hey, Josh. This is Todd. I would say, really, the two things that we look at are obviously demand and our procedure rate. What we saw in Q1 and what we're carrying into Q2, we're seeing very strong demand, and we're seeing a procedure rate essentially right in the middle of the range that we expected. So from our perspective, we're really not seeing any broader economic issues in our business. Demand continues to be strong, and there's clearly a demand for our product, and people are willing to pay the rates that we believe are appropriate for this business. So we feel really good about that. We haven't seen a change in financing in terms of the percent of people relying on financing. That hasn't really changed at all for us this quarter. So really, there's no indication at this point that there are any headwinds that are coming at us from the broader economic market, which is really encouraging for us.

Yeah. I'll just sneak one more quick one in. Just 2Q guidance, I heard strongest quarter, which is seasonally consistent, but any reason not to be more specific sort of than what you did last quarter?

Josh, as you know, the timing of producing numbers last quarter, we didn't report until the first part of March. So we almost had the entire quarter complete. We had a much higher confidence level. That's the reason we gave that. We're reiterating full year. We have confidence in the numbers. As you said, Q2 is our strongest quarter, and that's where we are from that standpoint. It's very early in to the second quarter. Things are going well. Momentum is again very, very strong and positive. But that was the reason why there was a guidance assistance after the year-end call for the first quarter.

Hey. Good morning. Thanks for taking the questions, and congrats on the quarter. So kind of piggybacking off some of those previous questions, can you just talk about what kind of the promotional environment this past quarter looked like? And if I recall, I think you had some heavier promotional activity in Q4. Did that have to continue at all into Q1? As we think about the outlook for the rest of the year, how are you baking in promotional need in the expectations, especially with the still volatile macro backdrop? Thank you.

Yeah. Thanks, Korinne. Thanks for the question. It's Todd. I would say that Q1 promotionally was very consistent with what we've done historically. As we mentioned on the last call, part of our promotional plan was not necessarily to discount but to bundle to try to drive value and get people to add more body parts, providing value through a bulk discount, if you will. We used that promotional strategy throughout the quarter, consistent with what we've done historically. That's why our rate ended up in the 12.6% range. We feel very good about this approach. I don’t see it changing throughout the year. Promotions, like other levers, are tools we use to drive the business, and we feel good about our strategy and its effectiveness for the balance of the year.

Very helpful. Thank you. And then just on some of the margin trajectory. Can you talk a little bit about what specific levers you're pulling on to improve that margin, both as we progress throughout this year and then into '24 and '25? If the gross margin isn't going to change that much, maybe we'll get a little bit of improvement, but then is it really going to come from that marketing and ad spend or can you just provide a little bit more detail there? Thank you.

Yeah, Korinne. It's Todd again. One of my focus areas is cost management, where we're looking up and down the P&L for efficiency opportunities. We're in the early stages, and I'm confident that we will achieve the $2.5 million cost savings we committed for this year. This will positively impact margins in the back half of the year. The run rate we expect is in the $5 million range. Our efforts will help improve margins as we move forward, and we feel good about the early work and opportunities. We reiterate our aim to achieve the $2.5 million in savings this year and the $5 million as we exit the year.

And Korinne, we are heavily focused on getting that margin number above 30%. We don't expect to necessarily be there this year, but that is our target. We have confidence that we should be able to get there as we work into 2024. As you could imagine, we invested quite a bit in our corporate structure this past year. Many of those are now fixed into the cost structure, similar to public company costs. As we drive top line, we start achieving additional margin expansion due to those fixed costs.

Hey. Good morning. This is Parker on for John Ransom. Maybe just talk about London and just your expectations there. Since it's a much different market than the North American market, are there different dynamics at play? I mean, different pricing and different economics with the surgeons. Is plastic surgery popular over in the U.K.? Is there a certain level of patient education required to get people to notice us over there? Talk about your expectations in the London market.

Hi. This is Aaron Rollins. Thank you very much for the question. I am very bullish on the London office. In fact, I fly there next week to start our actual live training cases in London. I've visited multiple times for press interviews, and plastic surgery is quite popular there. It's interesting to note that it's the first market we've gone into without competitors. Even doctors find it almost like science fiction that we can perform procedures while patients are awake. Our market research suggests a possibility for a higher average selling price. However, we won't know that until we start booking cases. Due to currency conversion and the overall market, we have a very unique opportunity without much competition for leads and ads. I couldn't be more excited about the London office. One thing that is different is the U.K. has a cool-off period, which means that from booking to surgery, there has to be a minimum of two weeks. Therefore, we will start seeing consultations shortly, followed by our first paid cases.

Okay. That's very helpful. In the prepared remarks, Aaron, you hinted at some new solutions coming later in the year. Are these things we've heard about before, or are they entirely new innovations?

I'm glad you asked. We are working on rolling out a new procedure, and that's all I'm going to say for now until we have more data. We always want to under-promise and over-deliver. So I look forward to sharing more about that soon.

If I can just squeeze in one last question, please give us an update on the metabolic study and how that's tracking. Any updated thoughts on when that will be released and if you'll have some data on it?

Great question. In the interest of creating shareholder value and improving our margins, we found the metabolic study to be very expensive, so for now, we've put the study on pause. Instead, we're pursuing scholarly articles. However, I anticipate a time when we might pursue another study that could generate more shareholder value, depending on the cost. We already know that liposuction significantly lowers triglyceride levels. There's no need to replicate a well-proven study. I'd rather create something new that shows AirSculpt can do what others cannot.

Thank you, ladies and gentlemen. That concludes our question-and-answer session. I'll turn the floor back to Mr. Magazine for any final comments.

Well, that's it. We really appreciate everybody for joining us today. Have a great weekend, and we will talk to you soon.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.